2. Motor Corp. manufactures machine parts for boat engines. The CEO, James Hamilton, is considering an offer from a subcontractor to provide 3,000 units of product AB100 at a price of $230,000. Each year, Motor Corp. manufactures 3,000 units of the part in-house with the following costs per unit:

Direct materials $40

Direct labour$25

Variable overhead$15

Fixed overhead$ 8

If the part was to be supplied by the subcontractor, Motor Corp.s fixed costs would be reduced by $10,000.

a) What would be the impact on short-term operating profit if the company were to accept the offer from the subcontractor? Show calculations to support your answer.

b) Describe two qualitative considerations that Motor Corp. should consider when deciding whether to accept the offer from the subcontractor. Make sure it is clear why these factors are relevant.