QUESTION 2 (100 marks) (a) A company can manufacture a certain component from bar stock using an automatic lathe. The breakdown of costs is as follows: Cost of automatic lathe $180,000.00 Tooling cost for component $ 2,000.00 Setting up time 10 hours Tool setter's rate $18.00 per hour Machine operator's rate $ 6.00 per hour Time to produce one component 3 minutes Cost of material per component $ 1.50 General overheads (excluding $15.00 per hour depreciation) Assume straight-line depreciation of the lathe over a period of 10 years, operating a 40 hour week for 50 weeks of the year. The anticipated life of the tooling is 1000 hours of production. (i) If the company agrees to supply 18,500 components to a customer at a price of $3.50 per component, what profit, if any, will the company make on the job? (25 marks) What is the break even quantity for this job? (5 marks) (iii) Before production begins, the customer negotiates a revised contract. The new contract is for the supply of 22,500 components at a price per component of $3.20. What is the breakeven quantity for the new contract and what profit, if any, will the company make on the revised job? (25 marks)