Natasha Inc. manufactures a special dessert, producing 35,000 units per year. The cost of each special dessert is as follows:

Direct material	$6.00
Direct labour	2.00
Variable overhead	1.50
Fixed overhead	3.50
Total cost	$13.00

The company is considering outsourcing the manufacture of this special dessert so that they can focus on the production of other products. If the special dessert line is dropped, the company will eliminate $77,000 of fixed costs as both the lease of the production equipment and the salary of the production line supervisor will be eliminated. The remaining fixed costs are common and are unavoidable. An outside supplier has offered to produce the special dessert at a cost of $12.00 per unit.

a) Should Natasha Inc. make or buy the special dessert? Show all calculations.

b) By how much will profit increase or decrease if Natasha Inc. buys the special dessert? Clearly indicate if profit would increase or decrease!

c) Assume, instead, that Natasha Inc. can rent the additional floor space for $15,000 per year if they buy the special dessert. By how much will profit increase or decrease if Natasha Inc. buy the special dessert? Clearly indicate if profit would increase or decrease!