M$17-19.$ Evaluating an Outsourcing Decision Epson produces color cartridges for inkjet printers. Suppose cartridges are sold to mail$-$order distributors for $\backslash (\backslash$$ $5\mathrm{.}20\backslash )$ each. Total fixed costs per year are $\backslash (\backslash$$ $342,000\backslash ).$ Variable cost per unit are $\backslash (\backslash$$ $1\mathrm{.}85\backslash )$ for direct materials, $\backslash (\backslash$$ $0\mathrm{.}10\backslash )$ for direct labor, and $\backslash (\backslash$$ $0\mathrm{.}30\backslash )$ for factory overhead. Also assume the current annual production and sales volume is $180,000$ and annual capacity is $220,000$ units. Required Determine the effect of the following situation on annual profits. A Guatemalan manufacturer has offered a one$-$year contract to supply ink for the cartridges $($including shipping costs$)$ at a cost of $\backslash (\backslash$$ $1\mathrm{.}25\backslash )$ per unit. If Epson accepts the offer, it will be able to reduce variable manufacturing costs by $\backslash (50\backslash \%\backslash )$ and rent some of its factory space to another company for $\backslash (\backslash$$ $1,100\backslash )$ per month for $12$ months.