Question 7: (10 marks) Assume that a company makes 100,000 plastic parts per year as a component in a nal product. The part is produced at a large production facility the company owns. The production facility is at capacity and the company could use any ee space to produce other products. The production process is highly automated and all labour is considered indirect labour. Production costs for the 100,000 units are: Direct Materials $ 1,000,000 Factory Overhead Indirect Labour 165,000 Supplies 60,000 Amortization: production Facility 80,000 305,000 $ 1,305,000 A small, local company has offered to supply the part for $11.50. If the inhouse production is discontinued it is expected that half of the supplies costs and $60,000 in indirect labour costs can be avoided. All other overhead costs would continue. It is expected that if the space is 'eed up for other production, the company can make other products in the free space which would generate an additional $75,000 in contribution margin. The division manager recently attended a seminar on cost behaviour and learned about xed and variable costs. She wants to continue to make the housings inhouse because the variable cost of $10.00 is lower than the offer of $1 1.50 per unit. Rguired (parts a, b & c]: a) Compute the relevant costs of (i) making the part, and (i) purchasing the part. Which alternative is less costly and by how much? (6 marks) b) What qualitative factors (specic to this question) might inuence the decision about whether to make or buy the component? (2 marks) c) Assume that any production space freed up cannot be used for other purposes and would remain idle if the part is not made inhouse. Would this affect the relevant costs and if so, by how much? Which alternative is now less costly (given this assumption)? (2 marks)