QUESTION $1$

Lara Company manufactures $30,000$ units of part M$-16$ each year for use on the product line.

At this level of activity, the cost per unit for part M$-16$ is as follows:

An outside supplier has offered to sell $30,000$ units of part M$-16$ each year to Lara Company

for RM$21$ per part. If Lara Company accept this offer, the facilities now being used to

manufacture part M$-16$ could be rented to another company at an annual rental of RM$80,000.$

However, Lara Company has determined that two$-$thirds of the fixed manufacturing overhead

being applied to part M$-16$ would continue even if part M$-16$ were purchased from the

outside supplier.

Required:

a$)$ Define the following terms with an example each related to the above scenario:

i$.$ Sunk cost

ii$.$ Opportunity cost

iii. Relevant cost.

b$)$ Determine the relevance to decision makings on the alternatives for each term in $($a$)$

c$)$ Prepare computation showing how much profits will increase or decrease if the outside

supplier's is accepted.help