TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,160 hours of welding time is avallable annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 5,200 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums: WVD Druma Selling price per drum Cost per drum: Direct materials Direct labor ($26 per hour) Manufacturing overhead Selling and administrative expense $181.00 $52.10 5.20 9.30 31.40 98.00 $ 83.00 Margin per drum Management believes 6,700 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 4,200 WVD-type drums per year at a price of $162 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling. Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan belleves that TufStuff could sell up to 1,760 bike frames per year to bike manufacturers at a price of $279 each. The accounting department has provided the following data concerning the proposed new product: Bike Frames $279.00 Selling price per frame Cost per franes Direct materials $104.20 Next> 2 of 5 ( Prev labor time that the bike frames would require. Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? 2. Compute the contribution margin per unit for (assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour for [assume direct labor is a fixed cost) 4. Assuming direct labor is a fixed cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit for (assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour for (assume direct labor is a variable cost) 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured (Assume direct labor is a variable cost] b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Reg 6 Reg 5 Req 7A Reg 78 Req 48 Reg 4A Reg 3 Reg 2 Reg 1 What is the increase (decrease) in net operating income that would result from this plan over current operations? [Assume direct labor is a variable cost] (Do not round Intermediate calculations.) Increase (decrease) in net operating income Ben 7A