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:
Direct materials $ 500
Direct manufacturing labor 250
Variable manufacturing overhead 200
Fixed manufacturing overhead 350
Total $1,300
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?