Wood Carving Corporation manufactures two products. Machine C4 is the constrained resource. The following per unit data relates to the two products of the corporation:

Letter Openers Candle Holders

Selling price $30 $44

Variable cost $20 $20

Machine hours required 1 3

Assume that Wood Carving only has 2,000 machine hours available next month. Also assume that the customer demand is 800 units for each product in a given month.

(1)What is the optimal production plan given the constrained machine hours?

(2)What is the maximum amount of contribution margin that Wood Carving can generate next month?

(3)Part S-90 is used in the production line. Currently, 1,000 units of S-90 is needed each month. At this level of activity, the cost per unit for part S-90 is:

Direct materials $0.40

Direct labor 2.00

Variable manufacturing overhead 0.50

Fixed manufacturing overhead 1.50

Total cost per unit $4.40

An outside manufacturer has offered to sell 1,000 units of part S-90 to the firm for $3.5 per unit. The manager has determined that one fifth of the fixed manufacturing overhead applied to part S-90 can be avoided if part S-90 were purchased from the outside supplier. Should the company accept the outside supplier's offer?