(9 pts) 6. Cooper Corporation makes bicycles. For many years, Cooper has made the rear wheel assembly for its bicycles. Recently, Rojas Company offered to sell these rear wheel assemblies to Cooper. If Cooper makes the assembly, its cost per rear wheel assembly is as follows:

Direct materials $8.00

Direct labor 15.00

Variable manufacturing overhead 8.00

Fixed manufacturing overhead, avoidable 6.00

Fixed manufacturing overhead, unavoidable (allocated on the basis of labor-hours) 8.00

Unit product cost $45.00

These costs are based on an annual production of 40,000 units.

Rojas offered to sell the assembly to Cooper for $32.00 each. The total order would amount to 40,000 rear wheel assemblies per year, which Coopers management will buy instead of making if the company can save at least $100,000 per year.

Required:

1. Should Cooper make rear wheel assemblies or buy them from Rojas? Show computations.
2. Discuss qualitative factors that might be considered in the decision-making process.