Simon Corp. manufactures chain saws. Management is interested in outsourcing production to a reputable company that can supply the saws for $250 per unit. Simon Corp. incurs the following annual production costs to produce 6,000 saws internally:

Per Unit cost at 6,000 units

Variable production costs:

Direct materials $180 $ 1,080,000

Direct labor 50 300,000

Manufacturing overhead 20 120,000

Fixed production costs:

Factory building and equipment lease 220,000

Factory insurance 90,000

Production supervisor salary 65,000

Total production costs $1,875,000

Outsourcing production eliminates all variable production costs, the production supervisor's salary, and factory insurance costs. Factory building and equipment lease costs will remain the same regardless of the decision to outsource or to produce internally.

1. Perform differential analysis, assuming that making the chain saws internally is alternative 1, and buying the saws from an outside manufacturer is alternative 2.

2. What would be your recommendation, regarding outsourcing production of chain saws? Give a least 2 supporting reasons for your recommendation.

3. Give 1 qualitative factor that would be a consideration in your decision.