Wicket Gourmet was created with the sole purpose of bringing a range of delicious gourmet products directly to the consumer. This Ontario-based business is all about quality ingredients, exceptional value, Canadian made, great flavor and taste. The companys product lines include spice mixes, barbeque sauces, oils, vinegars, and many more. The companys unit product cost for the plastic spice jars, based on a production level of 78,250 per year, is as follows:

	Per Part	Total
Direct materials	$2.40
Direct labour	1.15
Variable manufacturing overhead	0.75
Fixed manufacturing overhead	0.56	$39,125
Unit product cost	$4.86

A vendor has offered to supply to plastic spice jars to Wicket Gourmet for only $5.20 per spice jar. One-quarter of the fixed manufacturing cost is supervisory salaries and the costs that can be eliminated if the spice jars are purchased. The other three-quarters of the fixed manufacturing costs consist of depreciation of manufacturing equipment that has no resale value. The decision to purchase the plastic spice jars from the vendor would have no effect on the common fixed costs of Wicket Gourmet, and the space being used to produce the plastic spice jars would otherwise be idle.

Instructions

(a) How much profit would increase or decrease as a result of purchasing the plastic spice jars from the vendor rather than having the company make them. (7 marks)

(b) Assume that if Wicket Gourmet outsource the plastic spice jars to the vendor, it can utilize the free capacity by manufacturing a product with a margin of $63,800. Should Wicket Gourmet accept the vendors offer? (5 marks)