Question 1 14 Marks Steelhead Inc. manufactures a Bluetooth speaker. A supplier has offered to produce one of the sub- component parts (SCP) and management is trying to determine what the best course of action will be. The cost of making the component part on the existing equipment is as follows: Direct materials $7.00 per unit Direct labour $14.00 per unit Variable overhead $2.00 per unit Fixed overhead $200,000 per month The company normally manufactures 40,000 component parts per month, although requirements can vary widely, with a range from 25,000 units to 50,000 units per month. 2020 was very cyclical with sales in the first half of the year averaging 30,000 units per month . Sales picked up in the last part of the year and averaged 40,000 units per month in the last quarter. Steelhead's sales manager expects sales will continue to be uncertain in 2021 and in the longer-term sales are expected to slowly decline because of new competitors and technology changes. A supplier has offered to produce the SCP for $26.50 per unit plus a shipping fee of $.75 per unit. If the offer is accepted, 40% of the fixed overhead costs would be eliminated and some existing equipment could be sold for $70,000. Required: 1. If the volume of production of the component part remains at 40,000 should the company rent the equipment and continue to produce, or should it outsource production? (4 marks) 2. Calculate the indifference point under the conditions outlined in Requirement 1. Use this information and any other relevant information to discuss the advantages and disadvantages of outsourcing versus continue to make the product internally in this particular case.(4 marks) 3. Assume the conditions remain as stated in Requirement 1. If the company outsources the production of the SCP, it can use the freed-up machine hours using the same equipment (i.e., the equipment would not be sold.) to produce a different component that can be sold on the open market. In this case, there would be 3,000 machines hours available for the new component. It will take 0.4 machine hours to produce one component with a market demand of 7,200 units in the first year. The market for this product looks very favourable for the next few years. The unit would sell for $29.00, variable manufacturing costs will be $12.00 and variable marketing costs would be equal to 10% of the unit selling price. What course of action would you suggest Steelhead take? (6 marks)