Fairhaven Company needs 1,000 motors in its manufacture of boats. It can buy the motors from Asian Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit:

If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.
Required:
a.Should the company make or buy the motors?
b.What additional factors should Southwestern consider in deciding whether or NOT to make or buy the motors?

Question

Fairhaven Company needs 1,000 motors in its manufacture of boats. It can buy the motors from Asian Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit:
  
If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.
Required:
a.Should the company make or buy the motors?
b.What additional factors should Southwestern consider in deciding whether or NOT to make or buy the motors?

Quizplus · Accepted Answer

The Answer of Fairhaven Company needs 1,000 motors in its manufacture of boats. It can buy the motors from Asian Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit:
  
If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.
Required:
a.Should the company make or buy the motors?
b.What additional factors should Southwestern consider in deciding whether or NOT to make or buy the motors?

Fairhaven Company Needs 1,000 Motors in Its Manufacture of Boats