Quality Glass currently manufactures windshields for automobiles. Management is interested in outsourcing production of these windshields to a reputable manufacturing company that can supply the windshields for $45 per unit. Quality Glass incurs the following annual production costs to produce 15,000 windshields internally.

	Per Unit	Total Annual Cost at 15,000 Units
Variable production costs	$ 8
Direct materials	$ 10	$ 120,000
Direct labor	$ 11	150,000
Applied (and actual) factory overhead		165,000
Fixed production costs		390,000
Total production costs		$ 825,000

If the production is outsourced, the costs of variable production and 80 percent of the fixed production will be eliminated. However, the company has to bare 20 percent of the fixed production costs regardless of the decision to outsource or produce internally.

Required:

a. Perform differential analysis using the format presented in Figure 7.2. Assume making windshields internally is Alternative 1, and buying windshields from an outside manufacturer is Alternative 2.

b. Which alternative is best? Explain.

c. Summarize the result of outsourcing production using the format presented in Figure 7.3.