A further study by Sarah indicated that the manufacturing overhead is 40% variab

A further study by Sarah indicated that the manufacturing overhead is 40% variable which relates to production while the remaining fixed overhead is not expected to change. The administrative and marketing costs are 30% variable and are related to the product directly. The remainder is general administration. Based on the negotiations with suppliers it is expected that direct materials will increase next year by 4% while direct labour should increase by 2.5%. All other costs are expected to rise by 2%. Employees currently involved in the direct manufacturing of the guitar necks would not be re-trained to work in other areas of the firm but would be laid off.
Required
a.Should Banner continue to manufacture the necks or should they outsource to Guitar Haven? Complete your calculations with an Excel spreadsheet and explain your recommendations. (8 marks)b.What additional factors should Sarah consider before making a final decision? (7 marks)