Ben and Jerry established their business, Kiwi Component Ltd for producing motors for electric lawn mowers. Recently, they received a bid from a supplier offering to sell them rotors, an essential component of electric motors that Kiwi Component currently produces in-house. The offer is for 8,000 motors per year at $110 each. Ben and Jerry estimate the costs of producing one motor in-house as follows:

Direct Materials	$55
Direct Labour	$35
Variable Overhead Costs	$10
Fixed Overhead Costs	$70

Fixed overhead costs include both rent and depreciation on the machinery, which are considered unlikely to be change within the relevant range.

In response to the offer,Ben and Jerry commissioned a study to investigate whether any fixed overhead costs could be reduced. This study found that purchasing 8,000 rotors per year could:

• Avoid one setup cost where employees set up the metal melting for each batch of rotors produced. This would reduce total spending by $20,000.
• Allow one inspector to be laid off, saving $65,000.
• Allow one person in materials handling to be laid off, saving $35,000.
• Reduce engineering work by 50 hours at $55 per hour. However, the engineer currently allocated to the rotor production line would be re-assigned.

Ben and Jerry have asked you, a management consultant, to advise them on whether to accept the supplier's offer.

1. A determination of whether, on financial grounds alone, the rotor should be produced internally or purchased from the supplier (showing calculations)

1. if no changes are made; and
2. if all the suggested changes are made;