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

question 199

Essay

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:
$\begin{array}{lr}\text { Direct materials } & \$ 500 \\\text { Direct manufacturing labor } & 250 \\\text { Variable manufacturing overhead } & 200 \\\text { Fixed manufacturing overhead } & 350 \\\quad \text { Total } & \$ 1,300\end{array}$ 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?

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Definitions:

Distribution Center

A facility that handles the receiving, storage, and distribution of goods to various destinations or stores.

Multimodal Transportation

The use of two or more modes of transport to move goods or passengers from one place to another.

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs, focusing on environmental, economic, and social sustainability.

Future Generations

Future cohorts of people who will live after the current generation and are considered in planning and policy discussions, especially concerning sustainability and environmental preservation.