Make or Buy Decision

American Motor Company annually manufactures 100,000 units of its Part No. 42356, a bearing, for use in the production of its automobiles. The following costs will be incurred for this part in the current year:

Direct Materials	$200,000
Direct Labor	550,000
Variable Factory Overhead	450,000
Fixed Factory Overhead	700,000
Total	$1,900,000

Smaller Manufacturing Co. has offered to sell American 50,00 bearings at a cost of $18 per unit. If the offer is accepted, American can terminate its lease on certain existing facilities at an annual savings of $150,000. In addition, $4 per unit of the fixed overhead utilized for manufacture of the bearing would be eliminated.

Required:

Using the relevant cost approach, determine if American should make or buy the bearings.

B). What qualitative factor(s) may affect the decision?