American Motors Manufactures Automobiles Another Manufacturer Has Offered to Supply American Motors with the with the Following

question 11

Essay

American Motors manufactures automobiles.Currently,the company manufactures its own carpet mats with the following unit cost per set when 20 000 sets are manufactured:
$\begin{array}{lr}\text { Direct materials } & \$ 15.00 \\\text { Direct labour } & 20.00 \\\text { Variable overhead } & 8.00 \\\text { Fixed overhead } &\underline{4.00} \\\text { Total } & \$ 47.00\end{array}$

Another manufacturer has offered to supply American Motors with the mats at a cost of $45.00 per set.If American outsources the making of the carpet mats,fixed overhead costs are expected to decrease by 60%.
Required:
A. List at least two qualitative factors that American Motors should consider in this make or buy decision.
B. What are the relevant costs per set of making the carpet mats themselves?
C. What are the relevant costs per set of outsourcing the carpet mats?
D. From a quantitative basis, should they make or buy the carpet mats? By what amount will the company's net income increase or decrease if they outsource? Show calculations.

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