Relevance, short-term. (A. Atkinson) Oxford Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. The company current y manufactures all the parts used in these engines but is considering a proposal from an external supp mr who wants to supply the starter assembly used in these engines. The starter assembly is currently manu factured in Division 3 of Oxford Engineering. The costs relating to Division 3 for the past 12 months were as follows: Direct materials Direct manufacturing labour Manufacturing overhead Total $220,000 165,000 440,000 $825,000 Over the past year, Division 3 manufactured 150,000 starter assemblies; the average cost for the starter assembly is computed as $5.50 (= $825,000 = 150,000). Further analysis of manufacturing overhead revealed the following information. Of the total manu ac turing overhead reported, only 25% is considered variable. Of the fixed portion, $150,000 is an allocation O general overhead that would remain unchanged for the company as a whole if production of the starter assembly is discontinued. A further $100,000 of the fixed overhead is avoidable if self-manufacture of the starter assembly is discontinued. The balance of the current fixed overhead, $80,000, is the division man ager's salary. If self-manufacture of the starter assembly is discontinued, the manager of Division 3 wil be transferred to Division 2 at the same salary. This move will allow the company to save the $40,000 salary that would otherwise be paid to attract an outsider to this position. Required 1. Tidnish Electronics, a reliable supplier, has offered to supply starter assembly units at $4 per unit. Since this price is less than the current average cost of $5.50 per unit, the vice-president of manufacturing is eagerto accept this offer. Should the outside offer be accepted? (Hint: Production output in the coming year may be different from production output in the last year.) 2. How, if at all, would your response to requirement 1 change if the company could use the vacated plant space for storage and, in so doing, avoid $50,000 of outside storage charges currently incurred? Why is this information relevant or irrelevant