Part A - Make or Buy (10 marks) Reading Corporation uses part W66 in one of its products. The company's Accounting Department reports the following costs of producing the 4,000 units of the part that are needed every year. Per Unit Direct materials $2.80 Direct labour $6.30 Variable overhead $8.50 Supervisor's salary $2.60 Depreciation of special equipment $6.80 Allocated general overhead $6.10 An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labour, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part W66 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product. Required: Prepare a report that shows the effect on the company's total net operating income of buying part W66 from the supplier rather than continuing to make it inside the company. (8 marks) ii. Which alternative should the company choose? (2 marks)Part B -Special Order (10 marks) Lalla Electronic Company ("Lalla") makes a range of electronic products with a wide applications. Management is considering a special order from a well-known household name for purchasing 200 units of product SK9 at $125 each. The normal selling price of product SK9 is $152 and the unit product cost under the current production volume is determined as follows: Direct materials... $ 70.00 Direct labor ...- 32.00 Variable manufacturing overhead.. 14.40 Fixed manufacturing overhead . 30.40 Unit product cost.. $146.80 If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labour is a variable cost, variable manufacturing overhead is driven by direct labour-hours, and total fixed manufacturing overhead would not be affected by the special order. Required: If the special order were accepted, what would be the impact on Lalla's overall profit? (6 marks) ii. All the information in the problem holds true except that the Lalla only has access capacity of 100 units. In hoping to gain regular orders from this household brand name company in future, Lalla decides to sacrifice 100 units of sale to the existing customers to accommodate this special sale. What would be the impact on Lalla's overall profit? (4 marks)