Problem (10 points). Handel Dentistry Services is part of an HMO that operates in a large metropolitan area. Currently, Handel has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are attached. Fixed manufacturing overhead consists of the following: supervisor salary, $30,000; depreciation on equipment, $5,000; and rent expense on the lab facility, $20,000. Manufacturing overhead is applied on the basis of direct labor hours. The rates were computed using 5,500 direct labor hours. A local dental laboratory has offered to supply Handel all the crowns it needs. Its price is $100 for porcelain crowns and $132 for gold crowns. However, the offer is conditional on supplying both types of crowns. It will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Handel's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed and the supervisor laid off. Handel uses 1,500 porcelain crowns and 1,000 gold crowns per year. REQUIRED: (1) (2) (3) Should Handel continue to make its own crowns or should they be purchased from the external supplier? What is the dollar effect of purchasing? What qualitative factors should Handel consider in making this decision? Suppose that the lab facility is owned rather than rented and that the $20,000 is depreciation rather than rent. What effect does this have on the analysis in (1) above. Refer to the original data. Assume that the volume of crowns is 3,000 porcelain and 2,000 gold. Should Handel make or buy the crowns? Explain. (4) (4) HANDEL DENTISTRY SERVICES UNIT COSTS FOR PRODUCTION OF CROWNS Porcelain Direct Materials S 60.00 Direct Labor 20.00 Variable Manufacturing Overhead 5.00 Fixed Manufacturing Overhead 22.00 Total Cost $ 107.00 Gold 90.00 20.00 5.00 22.00 137.00 S