XYZ Ltd needs 1,000 motors in its manufacture of cars. It can buy the cars from Fast Motors for $1,250 each. XYZ'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 XYZ buys the motors from Fast Motors, 70% of the fixed manufacturing overhead applied will not be avoided.
Required:
a. Should XYZ make or buy the motors? Show your calculations
b. What additional (qualitative) factors should XYZ consider in deciding whether or not to make or buy the motors?