Please Answer

Choose one question to answer (either question 1 on this page, or question 2 on the next page): 1. The Freemont Company uses 2,500 units of Part 501 each year. The full manufacturing cost of one unit of Part 501 at this volume is: Direct materials $ 4.00 Direct labor 3.00 Variable manufacturing overhead 2.00 Average fixed manufacturing overhead 2.00 Total $11.00 An outside supplier has offered to sell Freemont unlimited quantities of Part 501 at a unit cost of $10.00. If Freemont accepts this offer, it can eliminate 60 percent of the fixed costs assigned to Part 501. Furthermore, the space devoted to the manufacture of Part 501 can be rented to another company for $5,000 per year. Required: a. Determine, in dollars, the increase or decrease of annual profits from Freemont accepting the offer of the outside supplier (state any assumptions you need to make). b. What else might Freemont consider relevant to its decision, for instance if you do not make the assumptions you used in part a