1. The CFO approaches you and wants to discuss a delicate matter. She indicates that they are looking at the possibility of outsourcing the rakes department as she believes that it is low performing. She has done some initial research and has found a manufacturer out of Vietnam that can provide these rakes for $39,000/each. She provides you with a departmental carve-out income statement from the rake's division. The CFO also remarks that she believes she remembers from her management accounting class that there is a concept of avoidable cost & sunk cost that might play a role in this analysis, she is hoping you can explain that to her as part of your memo. Additionally, she is worried about a specific piece of machinery that is used in the rakes department that cost $3,500,000 to buy and would have no other uses, the CFO believes it could be sold for $120,000.

Per 100 units sold Sales $ 4,500,000 Direct Materials 2,200,000 Direct Labour 1,000,000 Fixed expenses Salaries 400,000 Sales staff commissions 275,000 Rent 200,000 Amortization - specialized equipment 175,000 (cost is mentioned above) Training 115,000 Data processing 105,000 Insurance 75,000 Total Fixed Expenses 1,345,000 Net operating income (45,000) From your research you have determined the following