Question 4 Part I Elma Company uses part B12 to produce one of its products and the costs of producing the 6,000 units of the part that are needed annually were as follows: Direct materials Direct labour Variable overhead Supervisor salary Depreciation of special equipment Facility overhead assigned Per Unit $7.4 $7.3 $4.4 $4.0 $4.2 $3.2 An outside supplier has offered to make the part and sell each at $27 to the company. If this offer is accepted, the supervisor salary and all of the variable costs, including direct labor, can be eliminated. The room used to produce the part could be used to receive rental income of $21,000 annually. The special equipment used to make the part was fully depreciated and has no residual value. The facility overhead represents fixed costs of the entire company and only $4,000 of these facility overhead costs would be avoided if the outside supplier's offer were taken. Required: (a) By using a table with the below four column heading to compute the effect on the company's total net operating income of make or buy. Item Working Buy $ Make $ (12 marks) (b) How much of depreciation of the special equipment should be included in the above part (a) decision? Briefly explain. (1 mark) (C) Should the company buy or make? (1 mark) Part II Momo Company has unit selling price $50, unit variable cost $40 and fixed expenses $50,000. Required: (a) Use the graph paper provided to plot a cost-volume-profit graph on scale from zero unit to 8,000 units showing (i) Sales Revenue line with two dollar amounts at 0 and 8,000 units with dotted line; and (ii) Total Expenses line with two dollar amounts at 0 and 8,000 units with dotted line. (6 marks) Question 4 (continued) (b) Find the breakeven unit from the graph and use dotted line to show on the graph. (2 marks) Student Name: Subject code Question No. Seat No. Student Number: Hong Kong Community College X Cup Graph $5ook $300K $200k JOOK The Hong Kong Polytechnic University units 0 2,600 4,000 6,000 B Page 8 of 9