Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx 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

Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx 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 Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx 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?

Southwestern Company Needs 1,000 Motors in Its Manufacture of Automobiles