Question 3: (18 marks) Tyson Ltd. produces and sells premium hairdryers, which are the bestselling models in Australia and New Zealand. Their hair dryers require a thermostat component. Tysons senior management expects to sell 18,000 units of hairdryer in the coming year. The company has internally produced the thermostat component. Recently, Tysons CEO suggested the company should outsource the thermostat component to an external supplier. It is noted that the outsourcing decision would eliminate all variable costs and some of the fixed costs. Allocated costs will have to be absorbed by other production departments. Variable manufacturing costs to produce each thermostat component were: Direct materials per unit: $16 Direct labour per unit: $12.96 Indirect labour per unit: $1.78 Utilities per unit: $1.62 Fixed manufacturing costs to produce each thermostat component were: Cost item Direct Allocated Depreciation $5,940 $4,860 Property taxes 2,700 1080 Insurance 5,130 2,430 ABC Ltd. has offered Tyson a quote to purchase a similar thermostat component with the following information: 1. The lowest quotation for 18,000 units of thermostat component is $493,920 2. freight and inspection costs would be $0.72 per unit;receiving costs of $5,040 per year would be incurred by Tyson. 3. If the thermostat components are purchased on an ongoing basis, one of Tyons factories would be closed. The facilities would be rented out to produce a net income of $32,400 per year. 4. If the thermostat components are purchased on an ongoing basis, a machine operator from the plant will be transferred to the procurement department (the employees salary is $72,000). Required: a) Should Tyson continue to produce the thermostat in-house or purchase the component from ABC? Justify your answer with an appropriate incremental analysis. [12marks]