Mountain Air Limited manufactures a line of room air purifiers. Manufacturing is currently evaluating the possible production of an air purifier for automobiles. Based on an annual volume of 10,000 units, the predicted cost per unit of an auto air purifier follows:

Direct Materials..$8.00

Direct Labor$$1.50

Factory Overhead..$7.00

Total$16.50

* These cost predictions include $50,000 in fixed factory overhead averaged over 10,000 units.

The completed air purifier units include a battery operated motor, which Mountain Air assembles with parts purchased from an outside vendor for $2.00 per motor. Mini-Motor Company has offered to supply an assembled battery operated motor at a cost of $5.00 per unit, with a minimum annual order of 5000 units. If Mountain Air accepts this offer, it will be able to reduce the variable labor and variable overhead costs of the auto air purifier by 50%

a) Determine whether Mountain Air should continue to make the electric motor or outsource it from Mini-Motor. (Hint: analyze the relevant cost of making the motors not the entire air purifier)

b) If it could otherwise rent the motor assembly space for $20,000 per year, should it make or out-source this component?

c) What additional factors should it consider in deciding to make or out-source the electric motors?

I see answers to this question posted, but no answer seems to be complete. Can you offer a complete answer to this question that is correct?