Make-or-Buy Deosion Mrches Manufacturing had always made iss components in-house. Howevec, Canyonlands Component Worls had recently offered to supply one component, OA, at a pnce of 55? each. Arches uses 10,000 units of corrponent DA each year. The cost per unit of this component is as follows: Assume that 80\% of Arches Manufacturing's fived overhead for component DA would be eliminated if that component were no longer produced: Required: 1. Conceptual Conhecuon: If Arches decides to purchase the component from Camponlands, by how much will operating income increase of decrease (as compared to making t component in-house)? Which alternative is better? 2. Conceptual Connection: Brefly explain how increasing or decensing the Bow frove affects Archel's final decasion to make or purchase the component. As the percentage of avoidable foxed cost increases (above 80% ), total relevant costs of making the component increase, cousing the 'purchase" decision to be financially appealing (compared to the "inake' option) than it was when the percentage was 80N, In other words, as the percentage increases, differen 1. Conceptual Connectont If Arches decides to purchase the component from Canyonlands, by how much will operating income inorave or dectease (as compared to making the component in housen? s Which altemative is better? 2. Conceptual Connection: Erieffy explain how increasing or decreasing the 80% figure affects Arches's final dectsion to make or purchase the curruponent. financully appealing (compared to the "rake" option) than a was when the percentage was nos. In other wordh, as the percentage increases, difference foxed costs decreases, the "make" optisn evertually is cosily and appealing finanoally as the "purchase" option, finally, as the cotion becoges the more financally appealing eotion 1