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

	per unit	Total Annual Cost in 15,000 Units
Variable production costs	8 dollars
Direct materials	$ 10	120.000 $
direct labor	11 dollars	150.000
Applied (and actual) factory overhead		165.000
Fixed production costs		390.000
Total production costs		825.000 $

If production is outsourced, all variable production costs will be eliminated and 80 percent of fixed production costs will be eliminated. Regardless of the decision to outsource or in-house production, 20 percent of fixed production costs will remain.

Necessary:

a. Perform differential analysis. Suppose Alternative 1 is to manufacture windshields internally and Alternative 2 is to purchase windshields from an outside manufacturer.

b. Which alternative is the best? To explain.

c. Summarize the outcome of outsourcing production.

Answer rating: 100% (QA)

a To perform differential analysis we need to compare the total costs of each alternative Lets start ... View the full answer