Gill Brothers manufactures chainsaws that are used to cut down trees. The motor that powers the saw is also made by Gill Brothers, in a portion of a building owned by the company.

Gill Brothers are thinking about purchasing the motor from an outside supplier.

Last year, Gill produced 200,000 motors with the following costs:

Direct materials $ 2.00 per unit

Direct labor $ 1.50 per unit 

Variable overhead $ 1.00 per unit

Fixed overhead $ 3.50 per unit (based upon 200,000 units produced)

Regarding the fixed overhead, the amount of $1.00 per unit is the amount paid to the motor production manager. Her services will not be needed if the motors are not longer produced.

REQUIRED:

A. At the current level of 200,000 units and on the basis of financial considerations alone, should Gill make or purchase the motors? Gill can purchase the motors at $6.00 each from the outside supplier (5 marks)

B. At what number of units is the total cost of making the motors equal to the total cost of buying the motors? (6 marks).

C. Assume that if Gill purchases the motors that it could rent the space that it no longer needs to a third party. The business renting the space is going to make basketball hoops, and will sell them for $100 per unit. The rent that will be charged by Gill is dependent on the success of the business that is renting the space. The rent that will be charged for the rental of this space is 5% of the selling price of each hoop. hoops. The business renting the space would also pay the property taxes attributable to the rental space, which are included in fixed overhead at $.25 per unit.

Gill requires 200,000 motors. If Gill decides to buy the motors, how many units of the basketball hoops would have to be sold in order for Gill to be financially better off than if making the motors themselves? (7 ma