Refer to problem 7-46. Assume that Hutchens Electric can use the facilities freed up by purchasing the electric motors from Dalta Motor Company to produce a new model fan that would have a contribution margin of $95,000.

Required:

a. Prepare a relevant cost schedule that shows whether Hutchens Electric should buy the electric fan motors or continue to make them.

b. Discuss the qualitative factors that Hutchens should consider when making this make or buy decision.

problem 7-46.

Hutchens Electric produces electric fans, Hutchens manufactures 19,000 small electric fan motors each year. Dalta Motor Company has offered to supply Hutchens with the small electric motors for $12.50 each. The facilities that Hutchens uses to make the small motors are used to make larger motors and other components. Hutchens’s production cost for the small electric fan motors is as follows:

Required:

a. Prepare a schedule that shows whether Hutchens Electric should buy the electric fan motors or continue to make them.

b. Discuss the qualitative factors that Hutchens should consider when making this make or buy decision.

Transcribed Image Text:

Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total $132,000 26,500 43,500 77,500 $279,500