Note: Please put your answers only in the section below the Bold Red sentence at the end of the Required section below.

Sandboard Inc. currently produces sandboards. Management is interested in outsourcing production of sandboards to a reputable manufacturing company that can supply the sandboards for $$220$ per unit. Sandboard Inc. incurs the following annual production costs to produce $7,000$ sandboards internally:

Total Annual

Per Cost at

Unit $7,000$ units

Variable production costs:

Direct materials $$140$ $$980,000$

Direct labor $$7$ $$49,000$

Manufacturing overhead $$17$ $$119,000$

Fixed production costs:

Factory building and equipment lease $$200,000$

Factory insurance $$62,000$

Production supervisor salary $$70,000$

Total roduction costs $$1,480,000$

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.

Required:

A$.$ Perform a differential analysis, assuming that making the sandboard internally is one alternative, and buying the sandboard from an outside manufacturer is the other alternative.

B$.$ Explain which alternative is best and why.