FDR Corp. estimates it will produce 30,000 units of a part that goes into its final product. It
currently produces this part internally, but is considering outsourcing this activity. Current
internal capacity allows production of a maximum of 60,000 units of the part. The production
manager has prepared the following information concerning the internal manufacture of
60,000 units of the part:
			Per unit
	Direct materials		$3.00
	Direct labor		4.00
	Variable overhead		4.00
	Fixed overhead		8.00
	Total cost		$19.00
The fixed overhead of $6 per unit includes a $1.50 per unit allocation for salary paid to a
supervisor to oversee production of the part. The fixed costs would not be reduced by
outsourcing, except the supervisor would be terminated. Assume that if FDR outsources,
its purchase price from the outsourcer is $14 per unit.
REQUIRED:
a. Should FDR outsource? Provide support for your answer.
b. Assume FDR has received a special order for 10,000 units of the part from Alpha Corp.
Alpha will pay FDR $23 per part, but will take the parts only if they have been manufactured
by FDR. Thus, Alpha will engage in the special order only if FDR does not outsource any
of its production. Should FDR accept the special order? Explain why or why not.