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 $ 9.90Direct labor $ 8.90Variable manufacturing overhead $ 3.65Fixed manufacturing overhead $ 4.60An 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) $254,000108,000$184,000

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Business

Cristian Chang

10 December, 18:00

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 $ 9.90Direct labor $ 8.90Variable manufacturing overhead $ 3.65Fixed manufacturing overhead $ 4.60An 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) $254,000108,000$184,000

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Gael Myers · Answer 1

financial disadvantage (76,000)

Explanation:

Make:

relevant cost:

direct materials 9.90

direct labors 8.90

Variable MO 3.65

Total variable (relevant cost) 22.45

unavoidable cost: fixed 4.6

Purchase:

25.15

-22.45 relevant cost

2.7 saving per unit

40,000 x 2.7 = 108,000 saving before unavoidable cost

40,000 x 4.6 = (184,000) fixed cost

financial result (76,000)