Suzy Sun Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at $100\%$ of capacity, and variable manufacturing overhead is charged to production at the rate of $50\%$ of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $$4$ and $$6,$ respectively. Normal production is $50,000$ table lamps per year.

A supplier offers to make the lampshades at a price of $$13\mathrm{.}50$ per unit. If Suzy Sun Inc. accepts the supplier$$s offer, all variable manufacturing costs will be eliminated, but the $$50,000$ of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products.

Questions:

What would Suzy's total annual costs be if she made the shades?

What would Suzy's total annual costs be if she purchased the shades?

Should Suzy buy the lampshades?

If she does buy, how much will she save $($lose$)?$

Assume productive capacity released by not making the lampshades could be used to produce income of $$40,000.$ Should Suzy make or buy?

If she makes $($and does not buy$)$ in the above circumstance, how much will she gain $($lose$)$

Answer Choices:

$$50,000$ gain

$$50,000$ loss

$$775,000$

$$700,000$

yes

$$40,000$ loss

$$725,000$

no

$$25,000$ loss

buy

$$125,000$ gain

$$15,000$ loss

$$15,000$ gain

$$40,000$ gain

$$850,000$

$$25,000$ gain

$$125,000$ loss

$$675,000$

make