Smith Company makes widgets. Newman Company has approached Smith with a proposal to sell the company one of the components used to make widgets at a price of P100,000 for 50,000 units. Smith is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced: Materials used to make the widgets P44,000 Labor incurred to make the widgets 20,000 Other manufacturing costs 60,000 Total P124,000 The category "other manufacturing costs" includes P28,000 of costs that will be eliminated if the components are no longer produced by Smith. The remaining costs in this category will continue to be incurred, whether or not Smith makes the components.

1. How much better off or worse off will Smith be, if Smith buys the components from Newman, versus continuing to make the components in-house?

2. Should Smith make the components or buy them from Newman?