Make or Buy Decision: Management needs your help in determining if they should start manufacturing chocolate themselves. The Sweetwater Candy Company currently purchases its chocolates from a local manufacturer that makes the candy using Sweetwater's recipes; however, Sweetwater's management has been questioning whether the manufacturer is adhering to Sweetwater's high quality standards. Sweetwater owns the building in which it operates its retail store, and it owns the adjoining building that it currently rents to a tenant. Sweetwater's management is considering an expansion next year in which it would start using the adjoining building as a production space to make small batches of some of its specialty, seasonal chocolates. One of Sweetwater's best selling boxes of chocolates is an assorted box that includes seasonal chocolates with fillings made from organic Colorado peaches and cherries. Sweetwater would continue to use the local manufacturer to make its standard boxes of chocolates, but Sweetwater would take over production of the seasonal chocolates. Next year, Sweetwater is budgeting for total sales of 20,000 boxes. Under the expansion plan for next year, Sweetwater would purchase 15,000 boxes from the local manufacturer at a cost of $10 per box and produce 5,000 boxes with the following estimated variable costs: Direct materials Direct labor Variable overheac $3.55 $1.65 $0.85 Sweetwater would also have to purchase equipment and make some renovations to the building. These costs would add $8,000 per year of fixed costs. Also, Sweetwater would have to end the lease with its current tenant and, in doing so, would be giving up rent revenue of $1,300 per month ($15,600 for the year). Sweetwater's management believes that it will be able to reduce its cost of direct materials after the first couple of years of producing the specialty chocolates. The two options are as follows: Required: Option #1: buy the 20,000 boxes from the manufacturer Option #2: buy 15,000 boxes from the manufacturer and make 5,000 boxes Prepare a schedule to show the differential costs of each option. How would you advise Sweetwater's management? Explain.