The Lexington Company produces gas grills. This years expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexingtons management accountant reports the following costs for making the 40,000 burners:

	Unit Cost	Cost for 40,000 burners (2 per grill)
Direct Materials	$ 8.00	$ 320,000
Direct Labor	$ 4.00	$ 160,000
Variable OH	$ 2.00	$ 80,000
Inspection, setup, material handling		$ 8,000
Machine rent		$ 12,000
Allocated fixed cost of administrative costs		$ 80,000
Total costs		$ 660,000

Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available:

a. Inspection, setup, and materials-handling costs vary with the number of batches required for production. Burners are produced in batches of 1,000 units.

b. The machine used to make the burners is rented. If the burners are outsourced, Lexington doesn't need the machine.

Required:

1. Should Lexington continue to make the burners? Show all relevant work.

2. If Lexington outsources, they can use the space currently used to make burners to make a rotisserie attachment for the grills (1 per grill). This upgrade will increase the selling price of the grills by $48 per unit. The unit variable cost of the rotisserie is $38, and additional fixed costs of $160,000 would be incurred annually. The rotisserie would be made in batches of 500 units.

What is your recommendation given this additional information? Show all relevant work.