1. FFF Skate, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows: Total Cost Direct Material . $165,000 Direct Labor. 45,000 Variable Overhead 60,000 Fixed Overhead 300,000 Total $570,000 OOO Rubber Co. has offered to provide FFF with all of its annual wheel needs for $3.50 per wheel. Required: (a) Assuming that if FFF accepts this offer, 75% of the fixed overhead above could be totally eliminated (avoided). Based on this information, should FFF make the wheels or buy (outsource) them from OOO? (b) Now, assuming that in addition to the fact that 75% of the fixed overhead above could be totally avoided, FFF would be able to rent out the freed up space and could generate $72,000 of income annually. Based on this information, should FFF make the wheels or buy (outsource) them from OOO?

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