Problem 3: Relevant Costing (14 marks) Maple Leaf Furniture (MLF) is a domestic furniture manufacturer. Great Canadian Wood (GCW), an external supplier, has approached John Tavern Chief Financial Officer at MLF, with a proposal to manufacture upholstery frames for its living room sofas. John now wants to determine whether MLF should continue to manufacture its own frames or purchase them from GCW. MLF forecasts production of 98,000 living room sofas in 2022. GCW has submitted a bid to manufacture and supply the 98,000 frames at $19.50 per frame. The contract price of $19.50 is applicable only in 2022, but GOW is interested in a long-term arrangement beyond 2022. John submitted the following information regarding MLF's cost to manufacture 76,000 frames in 2021: Direct materials 760.000 Direct labor 490.000 Factory supervisor's salary 120.000 Factory rent 180,000 Other manufacturing costs 385.000 Total manufacturing costs 1,935,000 John collected the following information related to manufacturing the frames: If the Company decides to purchase from GCW, the supervisor will not be required at MILF. [ In 2021, MLF spent $40,000 to install and training new software on company wide computers. Of the amount spent on training, MILF allocated $3,000 to Fixed Manufacturing OH for training the factory supervisor. Twenty-five percent of the other manufacturing overhead is variable and changes with the number of units produced. MLF expects this rate per unit to increase 5% in 2022 At the end of 2021, MLF's purchasing manager decided to switch over to a new lumber supplier, sourcing wood at a cheaper price. As a result, direct materials cost used in the production of the frames is expected to decrease 3% in 2022 OMLF's direct labor contract calls for a 4% wage increase in 2022.O MLF is under a legally binding, long-term contract to rent the factory space now being used to manufacture the frames, which would otherwise be idle and has no alternative use. Moreover, at the end of 2021, a safety inspection determined that MILF's factory setup did not meet minimum standards required to operate. If MLF continues to operate out of this space, it must invest in changing its setup. MLF is expected to accept the property owner's proposal to provide this service, which would increase the annual rent in 2022 by 10%. Required a) Prepare a relevant cost analysis that shows whether MLF should manufacture the frames or purchase them from GCW for 2022. What are all the relevant costs to make and the relevant costs to buy externally AND what is the total difference in relevant costs between the two alternatives, assuming a volume of 98,000 units? (8 marks) b) Based on your analysis in part a , advise MLF which of the two alternatives is preferable. (1 mark) c) If GCW maintains its selling price at $19.50 per frame regardless of volume, at what volume of production would your answer in part b change? Please show your work (3 marks) d) The production manager has brought forth new information regarding the factory space. IfMILF decides to purchase the frames from GCW, the factory space can be used to produce furniture springs, which would generate a segment margin of $50,000 in 2022. In this case, the factory supervisor's employment contract would be renewed and the investment to meet safety standards would still be required. Considering this new information, what is the total difference in relevant costs between the two alternatives, which is preferred? (2 marks) [TOTAL: 14 marks]