Reference no: EM132919632

Question - Based on an annual volume of 50,000 units the predicted cost per unit of an auto air purifier is:

Direct materials $2.50

Direct labour $2

Factory overhead $12.00

Total $16.50

These cost predictions include $450,000 in fixed factory overhead averaged over 50,000 units. Also assuming the completed units included a battery operated electric motor which Coway assembles with parts purchased from an outside vendor for $2/motor.  Mini Motor Company has offered to supply an assembled battery operated motor at a cost of $5.25/unit with a minimum order of 5000 units.  If Coway accepts this offer it will be able to reduce the variable labour and variable overhead costs of the auto air purifier by 50%.

Determine whether Coway should continue to make the electric motor or outsource it from Mini Motor Company.

If it could rent the motor assembly space for $50,000 per year should it make or outsource?