QUESTION 2 (27 marks) Blue Led manufactures and sells paper products such as writing pads notebooks, postits, etc. The company plans to start with the most popular type of A4 site paper which weighs 75 gsm. The materials include the A4 size paper, the wrapping for each 500 sheets per ream and the box for each reams. The company has plenty of excess capacity and thus no additional machinery or fixed manufacturing overhead costs will be incurred to produce the new product line. However, a $1,500,000 charge for fixed manufacturing overhead per month will be allocated to the product under the company's process costing system. Using the estimated sales and production of 100,000 boxes of A4 size paper per month, the Accounting Department has provided the following estimated costs Cost of Cost of Cost of Total cost paper wrapper box Direct material 54,940,000 $10,000 $50,000 $5,000,000 Direct labour 480,000 10,000 10,000 500,000 Fixed manufacturing 1,460,000 10,000 30,000 1,500,000 overhead Total 56,000,000 $30,000 $90,000 $7,000,000 As an alternative to making the boxes in house, Blue Ltd has approached a supplier to discuss the possibility of purchasing the boxes. The supplier quoted a price of $0.7 per box for this site of business. Required Should Blue Lid make or buy the bones? Show your cale utations. QUESTION 2 cont'd b. Instead of sales of 100,000 boxes per month, revised estimates show a sales volume of 150,000 boxes. At this new volume, additional equipment must be acquired to manufacture the boxes at a monthly rental of $50,000. Assuming that the outside supplier will not accept an order for less than 100,000 boxes, what is the best way for Blue Ltd to obtain the required number of boxes? Explain why and show computations to support your answer. (8 marks) c. Similar case as point (b) above, if the supplier charges a higher price of $0.75 per box for orders below 100,000 boxes, what is the best way for Blue Ltd to obtain the required number of boxes? Explain why and show computations to support your answer. (6 marks) d. What qualitative factors should Blue Ltd consider in determining whether they should make or buy the boxes