Outsourcing (Make-or-Buy) Decision Mountain Air Limited manufactures a line of room air purifiers. Management 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 9.00 Total $18.50 These cost predictions include $60,000 in facility-level fixed factory overhead averaged over 10,000 units. One of the component part

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

Calculate the net advantage (disadvantage) of outsourcing the electric motors from Mini Motor Company.

• Use a negative sign with your answer to indicate a net disadvantage of outsourcing (if applicable). $Answer

(b) If it could otherwise rent the motor-assembly space for $24,000 per year, should it make or outsource this component?

Calculate the net advantage (disadvantage) of outsourcing the motors, assuming the space could be rented.

• Use a negative sign with your answer to indicate a net disadvantage of outsourcing (if applicable). $Answer