Question

The SP Corporation makes 40,000 motors to be used in the production of its sewing machines....

The SP Corporation makes 40,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is:

Direct materials $ 9.90
Direct labor $ 8.90
Variable manufacturing overhead $ 3.65
Fixed manufacturing overhead $ 4.60

An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $25.15. If SP Corporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. Direct labor is a variable cost in this company. The annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be:

Multiple Choice

($76,000)

$254,000

108,000

$184,000

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Case1: Company is making the machines:

Direct materials $9.90

Direct labor $8.90

Variable manufacturing overhead $3.65

Fixed manufacturing overhead $4.60

Total Cost $27.05

Total Cost for 40000 machines 40000*$27.05

Case2: Company decides to buy from outside:

Price offered $25.15

As none of the fixed manufacturing overhead cost could be avoided, company would still be incurring fixed cost of $4.6 per unit

Total Cost = $29.75

Total cost for 40000 machines $29.75 * 40000

Hence, the company would be saving $2.7 per unit if they decide to make it.

For 40000 machine : $2.7 * 40000 = $108000 Answer

Hence the company would be saving $108000 on 40000 machines if they decide to make the same.

3rd option is correct

Please let me know in case you have any queries and I would be happy to assist you.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The SP Corporation makes 43,000 motors to be used in the production of its sewing machines....
The SP Corporation makes 43,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials $ 10.20 Direct labor $ 9.20 Variable manufacturing overhead $ 3.80 Fixed manufacturing overhead $ 4.75 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $26.05. If SP Corporation decides not to make...
Your Company makes 35,000 motors to be used in the production of its sewing machines. The...
Your Company makes 35,000 motors to be used in the production of its sewing machines. The cost per motor at this level of activity is: Direct materials $4.50 Direct labor $4.60 Variable manufacturing overhead $3.75 Fixed manufacturing overhead $3.40 An outside supplier has offered to supply all the motors the company needs for $15 each. If Your Company decides to buy the motors, there would be no other use for the production facilities and 25% of the fixed manufacturing overhead...
Lusk Corporation produces and sells 14,500 units of Product X each month. The selling price of...
Lusk Corporation produces and sells 14,500 units of Product X each month. The selling price of Product X is $27 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $100,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company...
25. Fabri Corporation is considering eliminating a department that has an annual contribution margin of $33,000...
25. Fabri Corporation is considering eliminating a department that has an annual contribution margin of $33,000 and $66,000 in annual fixed costs. Of the fixed costs, $16,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be: 27. The SP Corporation makes 34,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials $ 9.30 Direct labor $ 8.30...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 90,000 wheels annually are: Direct materials $18,000 Direct labor $27,000 Variable manufacturing overhead $13,500 Fixed manufacturing overhead $57,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $12,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $32,100...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 100,000 wheels annually are:                Direct materials $20,000 Direct labor $30,000 Variable manufacturing overhead $15,000 Fixed manufacturing overhead $58,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $13,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $35,000...
Supler Corporation produces a part used in the manufacture of one of its products. The unit...
Supler Corporation produces a part used in the manufacture of one of its products. The unit product cost is $20, computed as follows: Direct materials $ 6 Direct labor 7 Variable manufacturing overhead 3 Fixed manufacturing overhead 4 Unit product cost $ 20 An outside supplier has offered to provide the annual requirement of 7,200 of the parts for only $13 each. The company estimates that 50% of the fixed manufacturing overhead cost above could be eliminated if the parts...
Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use...
Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products. Data concerning the unit production costs of the B345 gasket follow: direct materials .... 0.15 direct labor .... 0.10 variable manufacturing overhead ..... 0.13 fixed manufacturing overhead .... 0.24 total manufacturing cost per unit .... 0.62 An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If Kirsten Corporation decided to discontinue making...
Easyuse Tool Co. manufactures an electric motor that it uses in several of its products. Management...
Easyuse Tool Co. manufactures an electric motor that it uses in several of its products. Management is considering whether to continue manufacturing the motors or to buy them from an outside source. The following information is available. 1. The company needs 12,000 motors per year. The motors can be purchased from an outside supplier at a cost of $21 per unit. 2. The unit cost of manufacturing the motors is $35, computed as follows. Direct materials $ 96,000 Direct labor...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to...
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 100,000 wheels annually are: Direct materials $30,000 Direct labor $50,000 Variable manufacturing overhead $20,000 Fixed manufacturing overhead $70,000 An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel. If the wheels are purchased from the outside supplier, $15,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45,000...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT