American Motor Company annually manufactures 100,000 units of its Part No. 42356, a bearing, for use in the production of its automobiles. The following costs will be incurred for this part in the current year:

Smaller Manufacturing Co. has offered to sell American 50,000 bearings at a cost of \(\$ 18\) per unit. If the offer is accepted, American can terminate its lease on certain existing facilities at an annual savings of \(\$ 150,000\). In addition, \(\$ 4\) per unit of the fixed overhead utilized for manufacture of the bearing would be eliminated.
{Required:}
Using the relevant cost approach, determine if American should make or buy the bearings.

(b) What qualitative factor(s) may affect the decision?

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Direct materials. Direct labor........ Variable factory overhead..... $ 200,000 550,000 450,000 Fixed factory overhead........... 700,000 $1,900,000