Question 2 Buddy Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 11,800 of these toy pets is as follows: Direct materials ($33 per pet) Direct labour $27 per pet) Variable overhead ($12 per pet) Allocated fixed overhead ($25 per pet) Total $389,400 318,600 141,600 295,000 $1,144,600 Buddy Pets is approached by Maxum Inc., which offers to make the toy pets for $83 per unit. Using incremental analysis, determine whether Buddy Pets should accept this offer under each of the following independent assumptions: Prepare an incremental analysis. Assume that $118,000 of the fixed overhead cost (in making 11,800 of the toy pets) is avoidable. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).) Cost Make Buy Cost (Saving) Purchase price Variable overhead Fixed overhead Direct materials Sales Net income / (loss) Direct labour Total annual cost Total annual cost Should Buddy Pets continue to make the pets or buy the pets? Buddy Pets should the pets. Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Maxum, Buddy Pets can use the released productive resources to generate additional income of $193,800. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).) Cost Make Buy Cost (Saving) $ $ Total annual cost : Opportunity cost Total cost Should Buddy Pets continue to make the pets or buy the pets? Should Buddy Pets continue to make the pets or buy the pets? Buddy Pets should the pets. continue to make buy