NHS needs 2,000 motors in its production of autos. It can buy the motors from KLM...
NHS needs 2,000 motors in its production of autos. It can buy the motors from KLM Motors for $2,500 each. NHS’s plant can produce the motors for the following costs per unit:
Direct materials $1000
Direct manufacturing labor 500
Variable manufacturing overhead 400
Fixed manufacturing overhead 700
Total $2,600
If Southwestern buys the motors from KLM, 70% of the fixed production overhead applied will not be avoided.
Required: A. Should the company make or buy the motors?
B. What other factors should NHS consider in determining whether to make or to buy?
Homework Answers
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