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Surname 1NameTutorCourseDateEllen Motor DecisionIntroductionBusinesses are often faced with a puzzle to solve in order to generate more income or toreduce costs. This is not an exception for Elen Motors considering their high cost in producingcars, whereby the managers have been on the lookout on how to reduce cost. Notably, a highercost is incurred in car batteries, where they outsource them from Avari Battery Company. EllenMotor management is thus considering producing batteries rather than outsourcing them. Usingthe accounting rate of return, net present value, internal rate of return, and modified internal rateof return analysis, this paper analysis the outsourcing option and recommends whether to produceor outsource the car batteries.Cost to Make or purchaseTo begin with, Ellen Motors incurs $300 to purchase one battery, whereby it purchases2500 batteries per year. Thus, the total cost of purchasing batteries per year is $300 * 2500 =$750,000. On the other hand, to produce the batteries, the company needs to buy a machine worth$1,670,000 with a useful life of 10 years and a salvage value of $99,700. In addition to the machinecost, the company will incur $100 direct material per each produced battery and a variablemanufacturing overhead of $20 per unit. Also, the labor cost of $5200 calculated as 2080 hour*25Surname 2per hour and health benefit 20% on annual wage. Therefore, the total cost to produce is $612,400computed as250,000 (direct material ...


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