Until just last year, Xtreme Inc. was operating with plenty of excess capacity. All that changed at the start of the current  fiscal year when one of their surfboards was featured in a popular surfing magazine, SurfsUp! The increased exposure led  to a dramatic increase in demand for their surfboards and they have been unable to keep up with market demand. They anticipate that they will manufacture 15,000 surfboards this year, making full use of their machine's capacity. 
Presented below are the selling price and costs associated with Xtreme's surfboards. 

Selling price per surfboard $358 
Costs per surfboard 
Direct materials 240 
Variable machine operating costs ($16 per hour) 8 
Manufacturing overhead costs 30 
Marketing and administrative costs 20 298 
Operating income per surfboard $60 
Based on preliminary market research, Xtreme believes it could sell 20,000 surfboards annually if it had sufficient  manufacturing capacity. SunSport, Inc., a new entrant to the surfing market has agreed to provide 18,000 surfboards per  year at a cost of $270 per surfboard delivered to Xtreme's facility. They have promised that the quality of their surfboards  would be the same as Xtreme's, however, they are still very new to the market so there may be some issues around  production time. Chase Agualar, Xtreme's product manager, has suggested that the company can make better use of its  manufacturing capacity by producing boogie boards instead. Boogie boards are smaller than surfboards and therefore use  less direct material. Agualar believes that Xtreme could expect to sell 24,000 boogie boards annually at a price of $75 per  boogie board, especially given the increased exposure of the Xtreme brand. Agualar's estimate of the costs to manufacture the boogie boards is presented below:

Selling price per boogie board $75 
Costs per boogie board 
Direct materials 30 
Variable machine operating costs ($16 per hour) 2 
Manufacturing overhead costs 2.50 
Marketing and administrative costs 22 56.50 
Operating income per boogie board $18.50 

Other information pertinent to Xtreme's operations is presented below. 
An allocated $10 fixed overhead cost per unit is included in the marketing and administrative cost for all purchased and  manufactured products. Total fixed and variable marketing and administrative costs for the purchased surfboards would be $20 per board. Xtreme uses machine hours as the allocation base for other manufacturing overhead costs. 

The fixed manufacturing overhead component of these costs for the current year is the $225,000 of fixed plant-wide manufacturing overhead that has been allocated to this machine. 

REQUIRED 
Part 1: 
Which product or products should Xtreme manufacture and/or purchase to maximize operating income. Show all calculations. 

Part 2: 
Answer the situations below (each situation should be assessed independently) 
A) If it would cost Xtreme $800,000 to implement the changes necessary to outsource the surfboards, would you recommend they do this? 
B) If SunSport reduced their cost per surfboard by $20, which product or products should Xtreme manufacture and/or purchase to maximize operating income? What advice would you give to Xtreme? 
C) Are there any other qualitative considerations that matter in Part 1 that would affect your answer? 

Part 3: 
Assume that Xtreme outsourced production to SunSport. After four years of working together, SunSport began to become  a dominant supplier of surfboards. Consequently, starting in year 5, they wish to increase their price to $320 per surfboard. While you have been impressed with the quality of their product, you're uncertain if outsourcing still makes sense given the new cost. Should Xtreme continue to outsource its production? If so, why, and if not, why not? 
Part 4: 
Verify your results for Part 1 by creating a Solver model; does your output match what you determined manually?