Exhibit 7-3 Cap Incorporated currently manufactures hats. Management is interested in outsourcing production to a reputable manufacturing company that can supply the hats for $5 per unit. Cap produces 20,000 hats each year. Variable production costs are $2 and annual fixed costs are $75,000. If production is outsourced, all variable costs and 60 percent of annual fixed costs will be eliminated. 13. Refer to Exhibit 7-3. Which is the best alternative, producing internally or outsourcing? a. Outsourcing the production of hats results in $15,000 in savings compared to internal production. b. Outsourcing the production of hats results in $30,000 in savings compared to internal production. c. Producing the hats internally results in $30,000 in savings compared to outsourcing production. d. Producing the hats internally results in $15,000 in savings compared to outsourcing production. e. None of the answer choices is correct. 14. Barkley Company currently makes a product internally, but is considering outsourcing production. Barkley rents a special machine used to make the product, and would no longer need this machine if the part is outsourced. The rent on the machine is what type of cost for this make-or-buy decision? a. sunk and not differential. b. avoidable and differential. c. unavoidable and differential. d. avoidable and not differential. e. None of the answer choices is correct.