Omni Energy Inc currently manufactures the shafts it uses for the portable wind generators it builds at its Calgary production facilities. Omni has been approached by Shure Shafts Inc, a company in Edmonton that has indicated they can make identical shafts for Omni at a cost of $5,200 each. The accounting department at Omni has been asked to summarize the costs of manufacturing the shafts over the past fiscal year. This is what they provided:

The accountants believe that 20% of the fixed overhead costs could be saved if the shafts were not manufactured at the Calgary facility. The equipment used to manufacture the shafts is a specialized piece of equipment and cannot be used to make any other parts. Also, it is believed the equipment has no value to anyone.

Required:

Should Omni Energy accept Shure Shafts offer? Support your answer with an analysis of the costs. Show your calculations. (7 marks)

Costs Direct materials $42,000,000 Direct labour $30,000,000 Variable overhead $20,000,000 Equipment depreciation $28,000,000 Allocated fixed overhead $40,000,000 Total costs $160,000,000 Total parts produced 20,000