Industrial Solutions, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the companys products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. The company uses a just-in-time production system for these drums. As a result, it holds no WVD drum inventory. It currently produces and sells 5,000 WVD drums annually. Industrial Solutions, Inc.s accountants have provided detailed cost information for the WVD drums (in the accompanying spreadsheet). According to this report, the total cost of producing and selling a drum is $109.80. Harcor Industries has offered to sell drums to Industrial Solutions, Inc. for $75.00 per unit.

1.total operating profit from drums when the drums are manufactured internally:$196,000

2.the absorption costing manufacturing cost per unit for drums:$80

3.the total number of labor hours used to produce drums:1,000 labor hours used to produce drums

4.the overhead allocation rate for FMOH: $126.50

5.the fixed selling and administrative overhead rate:$0.17

questions:

a. Should Industrial Solutions, Inc. outsource the drums? By what amount would its operating income change if the drums were outsourced?

b. What is the most that Industrial Solutions, Inc. should be willing to pay to outsource the drums? By how much would Harcor need to reduce their selling price to make outsourcing attractive to Industrial Solutions, Inc.?