Part $2$

Electric Scooter Corporation makes motorized scooters for city commuters. The scooters can be charged

using a regular household plug, and the batteries hold their charge for $24$ hours. The manufacturing

plant is currently operating at $70\%$ capacity. The plant manager is considering manufacturing headlights

for the scooters, which are currently being produced by an outside company and purchased by Electric

Scooter for $$11$ each. Electric Scooter has the equipment and the workforce to produce the headlights.

The engineers have suggested a variable cost of $$3$ in direct labour and $$4$ in direct materials. The plant

overhead rate is $200\%$ of direct labour dollars; of which $40\%$ of the overhead is a fixed cost with the

remainder being variable overhead. There is no alternative use for the plant, so the fixed plant overhead

will not change depending on the decision by Electric Scooter.

Requirements:

$1.$ The manager of Electric Scooter Corporation, Nabil Essami, is unsure what the company should do

and would like an analysis showing the unit costs and total costs for each of the two alternatives

given above. Assume that $17,000$ scooters are needed each year. Which course of action would

you recommend to Nabil? Show all computations. $\{$Hint: To simply and organize in an efficient

manner, use a table to analyze your decision similar to the make vs buy tables in Module $14,$

Chapter $10,$ page $526$ of the textbook, being sure to include all of the relevant costs from this

particular decision.$\}$

$2.$ Regardless of the results of your analysis to Requirement $1,$ assume that Nabil decides to

outsource and purchase the headlights from an external supplier, what other factors would you

recommend that Nabil consider before making that decision?