Mohave Corporation 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 $8,200$ units per year for $$9\mathrm{.}50$ each. Mohave the following information

about the cost of producing tote bags:

Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while $60$ 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 tote 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 the space Mohave currently uses to make the bags could be utilized by a new product line that would generate

$$10,000$ 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?