Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has

received a bid from a supplier in Vietnam to produce $8,900$ units per year for $$7\mathrm{.}50$ each. Mohave has the following information ab

the cost of producing tote bags:

Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while $70$ percent of the fixed

overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the

bags.

Required:

Compute the difference in cost between making and buying the umbrella tote bag.

Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them?

$3-$a$.$ Suppose that the space Mohave currently uses to make the bags could be utilized by a new product line that would generate

$$12,000$ in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.

$3-$b$.$ Does this change your recommendation to Mohave?