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

a.
Cost to buy the part: (1,000 × $1,250)      $1,250,000
Relevant costs to make:
Variable costs:
   Direct materials (1,000 × $500)   $500,000
   Direct manufacturing. labour (1,000 × $250)   250,000
   Variable manufacturing overhead (1,000 × $200)   200,000
   Total   950,000
Avoidable fixed costs: ($350 × 1,000 × 0.30)   105,000   1,055,000
Savings if part is manufactured      $195,000

b.   Management should consider several qualitative factors in deciding whether to make or buy the motors.

∙   Quality controls The company's ability to manufacture quality motors versus that of the supplier.
∙   Delivery Can they make them when needed versus Jinx delivering them when needed?
∙   Reputation What is the overall reputation of Jinx?
∙   Term Is Jinx willing to make long-term commitments for delivery of the motors?
∙   Facilities What are the opportunity costs of using the space and equipment to manufacture other items?