Pitt Motors manufactures small engines. The engines are sold to manufacturers who install them in products like lawn movers, snow blowers etc. The company currently makes all the parts used in these engines, but is considering a proposal from an external supplier - Ohio Electronics - to supply the starter assembly for the engines. The starter assembly is currently manufactured in Division 3 of Pitt Motors. The costs relative to Division 3 for the last 3 months are as follows: Direct Materials Direct Manufacturing Labor Manufacturing Overhead $ 200,000 150,000 400,000 Total $750,000 Over the last year, Division 3 manufactured 150,000 starter assemblies; the average cost for starter is computed as $5 (750,000/5). Further analysis of manufacturing overhead revealed the following information. Of the total manufacturing overhead, only 25% is considered variable. fixed portion, $150,000 is an allocation of general overhead that would remain unchanged for the company as a whole if production is discontinued. A further $100,000 of the fixed overhead is avoidable if self-manufacture of the starter assembly is discontinued. The balance of the current fixed overhead, $50,000 is the division manager salary . If self-manufacture of the starter assembly is discontinued, the manager of Division 3 will be transferred to Division 2 at the same salary. This move will allow the company to save the $40,000 salary that would otherwise be paid to attract an outsider to this. Ohio Electronics, a nearby supplier has offered to supply starter assembly at $4 per unit. Since this price is less than the current average unit cost of $5 per unit, the VP of Manufacturing is eager to accept this offer. Should the outside offer from Ohio Electronics be accepted? Explain your reasoning. (Hint: Production output in the coming year may be different from production output last year) How at all, would your response change if the company could use the vacated plant space (from going to the outside supplier Ohio Electronics) and, in doing so avoid $50,000 of outside storage charges currently incurred for general storage needs? Why is this information relevant or irrelevant?