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Outsourcing $($Make$-$or$-$Buy$)$ Decision

Direct materials $$8\mathrm{.}00$

Direct labor $,1\mathrm{.}50$

Factory overhead $6\mathrm{.}00$

Total $$15\mathrm{.}50$

These cost predictions include $$50,000$ in facility$-$level fixed factory overhead averaged over $10,000$ units. motor's components will cost $$2\mathrm{.}00$ if Mountain Air assembles the motors.

$($a$)$ Determine whether Mountain Air should continue to make the electric motor or outsource it from Mini Motor Company. $($Hint: Analyze the relevant costs of making the "motors," not the entire air purifier.$)$

Calculate the net advantage $($disadvantage$)$ of outsourcing the electric motors from Mini Motor Company.

Use a negative sign with your answer to indicate a net disadvantage of outsourcing $($if applicable$),$

$q,$

$($b$)$ If it could otherwise rent the motor$-$assembly space for $$21,000$ per year, should it make or outsource this component?

Calculate the net advantage $($disadvantage$)$ of outsourcing the motors, assuming the space could be rented.

Use a negative sign with your answer to indicate a net disadvantage of outsourcing $($if applicable$).$

$$

$($c$)$ Management should consider which of the following nonquantitative factors in deciding whether to make or buy the motors.

The quality of their own and the supplier's motors.

The dependability of the supplier.

Whether Mini Motor has a track record of meeting its commitments.

Whether they can depend on Mini Motor to supply motors for a number of years or whether it is attempting to use some temporarily idle capacity.

OAll of these.

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