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Question 1:

Easy Access Medical Supplies makes semi-motorized walking sticks. They have decided to investigate whether they should continue to make or buy the walking sticks from a supplier.

Currently, the cost of producing 10,000 semi-motorized walking sticks is as follows:

Cost description	Per Unit $
Direct Material	15
Direct Labor	10
Variable Factory Overhead	8
Fixed Factory Overhead	15
	$48

The same component can be purchased from an outside supplier for $38 per unit.

If the company purchases the semi-motorized walking sticks, 20% of the fixed costs will be eliminated.

Required:

1. Using incremental analysis, determine if the component should be purchased from the outside supplier? 8 Marks
2. Would your decision in part a) change if the company has the opportunity to rent out its facilities that it currently uses to manufacture the component for $5,500? Show full computations. 4 Marks
3. Why Opportunity Costs are not recorded in the financial books but are considered a relevant cost. 3 marks