Elroy Racers makes bicycles. It has always purchased its bicycle tires from the M. Wilson Tires at $25 each but is currently considering making the tires in its own factory. The estimated costs per unit of making the tires are as follows:

Direct materials                                . . . . . . . . . . . . . . . . . $8

Direct labor                                        . . . . . . . . . . . . . . . . . $5

Variable manufacturing overhead . . . . . . . . . . . . . . . . . $7

The company’s fixed expenses would increase by $60,000 per year if managers decided to make the tire.

Required

a. Ignoring qualitative factors, if the company needs 10,000 tires a year, should it continue to purchase them from M. Wilson or begin to produce them internally?

b. What qualitative factors should Elroy Racers consider in making this decision?