1. Nazret Tractors Share Co requires an electric motor to be used in the new model of tractors it plans to manufacture. The purchasing manager of the company has received a bid of $29 per motor from National Motors Company for any number of electric motors it needs. Delivery is guaranteed within two weeks after order.

Nazret's production manager believes that the company could make the motor internally by extensively converting an existing model. Additional space and machinery would be required if Nazret were to make the motors. The company currently leases, for $27,800 per year, space that could be used to make the motors. However, the space is now used to store vital materials, so Nazret would have to lease additional space in an adjacent building to store the materials. That space could be rented for $38,000 per year. It is suitable for storage, but not for converting the motors. The equipment needed to convert the motors could be rented for $55,000 per year.

The treasurer of the company has developed the following unit costs based on the expected demand of 18,000 units per year.

Materials $11.80

Direct labor 10.60

Rent for space 2.20

Machinery rental 2.50

Other overhead 8.20

Total Cost $35.30

The "other overhead" figure includes $5.40 in fixed overhead that would be allocated to conversion of the motors. The remainder of "other overhead" is variable.

Required

1. Determine whether Nazret should make or buy the motors.
2. Determine the volume of motors at which Nazret show the same total income whether it bought or made the motors.
3. Suppose that Nazret has decided to make the motors and signed one-year contracts for the additional space and equipment. These contacts cannot be canceled. Determine the price that National Motors would have to offer Nazret to induce it to buy the motors.