Tufstutt, 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 2,100 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding machine time, annual production is limited to 2,625 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: WWD Drums Seling price per drum Cost per drum 5 160 00 Direct materials Direct labor ($18 per hour) Marnufacluring overhead Selling and administrative expense rgiri per drurn $45 80 4.45 16 70 71.45 $ 83.55 Management believes 3,125 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an altemative to adding another welding machine, management has considered buying additional drums from an outside suppler. Harcor Industries, Inc., a suppliler of quallty products, would be able to provide up to 1,600 wwD-type drums per year at a price of $130 per drum, which Tutstuff would resell to Its customers at its normal selling price after appropriate relabeling. Megan Flores, TufStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,100 bike frames per year to bike manufacturers at a price of $71 each. The accounting department has provided the following data conceming the proposed new product: Bike Frames S 1.00 Sciling price per trame Cost per frame Direct materials Direct labor ($18 per hour) $18.80 22.50 Selling and administrative cxpcnsc 7.80 Margin per frame 5 4.65 The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fxed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.18 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but It has been estimated that varlable selling and administrative expenses amount to $0.98 per WWD drum whether made or purchased and would be $1.70 per bike frame. All of the company's employees direct and indirect are paid for full 40-hour workweeks and the company has a policy of laying off workers only in major recessions. 4. Redo requirements (2) and (3) making the opposite assumption about direct labor from the one you originally made. In other words, if you treated direct labor as a variable cost, redo the analysis treating it as a fixed cost. If you treated direct labor as a fixed cost, redo the analysis treating it as a variable cost. a. Compute the contribution margin per unit for [assume direct labor is a variable cost] (Do not round intermediate calculations. Round your answers to 2 decimal places.) Purchased WVD drums Manufactured WVD drums Manufactured bike frames Contribution Margin $ 29.02 per unit per unit per unit b. Compute the contribution margin per welding hour for [assume direct labor is a variable cost]: (Round your final answers to 2 decimal places.) Contribution Margin per hour per hour Manufactured WVD drums Manufactured bike frames C. 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 Purchased Manufactured WVD drums Bike frames d. What is the increase in net operating income that would result from this plan over current operations? (Do not round intermediate calculations.) Increase in net operating income