QUESTION:

Elsie Inc. operates an outstanding caf in the Bloor West Village and makes their own pastries. The company has an option to buy their pastries from a local operation instead of making them. Duffels Ltd. has offered to sell the pastry to Elsie Inc. for $11.00 each.

Elsie Inc. has the following information about their operations:

Annual production	3500	units
Production costs per unit:
Direct materials	$6.00
Direct labour	$2.00
Variable overhead	$1.50
Fixed overhead	$3.50
Total	$13.00

Fixed overhead is allocated to products based on the annual production.

If Elsie Inc. were to purchase their pastries from Duffels Ltd. a total of $7,700 of fixed overhead would be avoided. The remaining fixed overhead is common fixed overhead and would not be impacted.

There is no alternative use for the area currently being used to make the pastries.

Using the above information answer the following questions.

If Elsie Inc. decides to buy the pastries from Duffels Ltd. would their operating income increase or decrease?

Enter the letter A for increase.

Enter the letter B for decrease.

By how much will operating income increase or decrease by if Elsie Inc. buys the pastries from Duffels Ltd.?

Enter your answer as a positive number.

Should Elsie Inc. make or buy the pastries?

Enter the letter A for make.

Enter the letter B for buy.