Question 3 Tolkien Transport has a small facility adjacent to its Leeds depot which it uses to manufacture tarpaulins for its lorries. The facility currently produces 3000 tarpaulins a year. The company's Finance Manager has estimated the cost per tarpaulin at this level of output to be: Cost per unit Direct Materials 50 Direct Labour (cutting, trimming and 45 sewing) Variable manufacturing overhead 37 Fixed manufacturing overhead 43 An outside supplier has offered to supply all the tarpaulins required by Tolkien for 145 each. If Tolkien decided not to make the tarpaulins, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. Required: a) Calculate how much higher or lower Tolkien's net operating income would be if it purchased the tarpaulins from the outside supplier, showing all calculations, Would you advise Tolkien to accept the offer? (5 marks) b) Clearly explain to Tolkien's Finance Manager how opportunity cost might affect the make or buy decision. Illustrate with a numerical example. (5 marks) (10 marks)