Posted: March 6th, 2017
Southwestern Company needs 1000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1250 each.
Southwestern’s plant can manufacture the motors for the following costs per unit:
Direct manufacturing labor- $250
Variable manufacturing overhead- $200
Fixed manufacturing overhead- $350
If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.
a) Should the company make or buy the motors? Show calculations.
b) What additional factors should Southwestern consider in deciding whether or not to make or buy the motors?
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