Southwestern Company needs 1000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1250 each.

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 materials-$500

Direct manufacturing labor- $250

Variable manufacturing overhead- $200

Fixed manufacturing overhead- $350

Total- $1300

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? Show calculations.

b) What additional factors should Southwestern consider in deciding whether or not to make or buy the motors?

Southwestern Company needs 1000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1250 each.