Mountain air limited manufactures a line of room air purifiers. management is currently evaluat-

ing 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 electric 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 mini-
mum annual order of 5,000 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 percent.

required

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.)
b. if it could otherwise rent the motor-assembly space for $20,000 per year, should it make or
outsource this component?
c. what additional factors should it consider in deciding whether to make or outsource the elec-
tric motors?

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During january 2018, the following transactions occur: january 1 purchase equipment for $20,600. the company estimates a residual value of $2,600 and a five-year service life. january 4 pay cash on accounts payable, $10,600. january 8 purchase additional inventory on account, $93,900. january 15 receive cash on accounts receivable, $23,100 january 19 pay cash for salaries, $30,900. january 28 pay cash for january utilities, $17,600. january 30 firework sales for january total $231,000. all of these sales are on account. the cost of the units sold is $120,500. the following information is available on january 31, 2018. depreciation on the equipment for the month of january is calculated using the straight-line method. the company estimates future uncollectible accounts. at the end of january, considering the total ending balance of the accounts receivable account as shown on the general ledger tab, $4,100 is now past due (older than 90 days), while the remainder of the balance is current (less than 90 days old). the company estimates that 50% of the past due balance will be uncollectible and only 3% of the current balance will become uncollectible. record the estimated bad debt expense. accrued interest revenue on notes receivable for january. unpaid salaries at the end of january are $33,700. accrued income taxes at the end of january are $10,100