Question 4 (Total 10 points) Oxford Engineering manufactures small engines. The engines are sold to manufacturers who install them in products such as lawn mowers. The company currently manufactures all the parts used in these engines but is considering a proposal from an external supplier who wishes to supply the starter assemblies used in these engines. The starter assemblies are currently manufactured in Division 3 of Oxford Engineering. Every year Division 3 manufactures 150,000 units of the starter assemblies. The yearly costs relating to the starter assemblies were as follows: Direct materials ................................... $400,000 Direct labor ........................................ 300,000 Manufacturing overhead .......................... 800,000 Total ............................................... $1,500,000 Further analysis of manufacturing overhead revealed the following information. Of the total manufacturing overhead, only 25% is considered variable overhead. Of the xed overhead, $300,000 is an allocation of general overhead that will remain unchanged for the company as a whole even if the production of the starter assemblies is discontinued; $200,000 of the xed overhead is avoidable if the production of the starter assemblies is discontinued; $100,000 of the xed overhead is the salary paid to the division manager of Division 3. If the production of the starter assemblies is discontinued, the manager of Division 3 will be transferred to Division 2 at the same salary. This move will allow the company to save the $80,000 salary that would otherwise be paid to attract an outsider to this position at Division 2. Required: (3) Tidnish Electronics, a reliable supplier, has offered to supply starter-assembly units at $8 per unit. The company (Oxford Engineering) needs 150,000 units of start assemblies per year. On the basis of nancial consideration alone, should the company (Oxford Engineering) buy the starter-assembly units from Tidni sh Electronics, or continue to make the starter-assembly units by itself? Show your computation. (8 points) (b) How would your answer to the above question (a) change if the company could use the vacated plant space of Division 3 if the production is discontinued. By using the space for storage, the company can avoid $100,000 of outside storage fee currently incurred. Show your computation. (2 points) 11