The Engine Guys produces specialized engines for snow climbe

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School

Conestoga College *

*We aren’t endorsed by this school

Course

8035

Subject

Business

Date

Apr 3, 2024

Type

docx

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Uploaded by JudgeParrotMaster992

The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 1,000 engines, whereas its monthly production capacity is 2,000 engines. The current selling price per engine is $1,260. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Costs per Unit for Engines Manufacturing costs:Direct materials$160Direct labour 200Variable overhead 40Fixed overhead 200 Subtotal$600Marketing costs:Variable$ 60Fixed 140 Subtotal 200Total unit cost$800 Page 564 Required: Answer the following independent questions. 1. The Provincial Bus Company wishes to purchase 300 engines in October. The bus company is willing to pay a fixed fee of $480,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 300 motors. October is a busy month for The Engine Guys, and there are sufficient orders to operate at 100% capacity utilization. There will be no variable marketing costs on this government contract. Indicate whether the Provincial Bus Company's contract should be accepted. Provide all supporting calculations. 2. 3. An outside contractor is willing to supply 500 engines at a price of $600 per unit. If the offer is accepted, the company will make 500 engines in-house and buy 500 engines from the contractor. The company's fixed manufacturing costs will decline by 20% and the variable marketing costs per unit on the 500 engines purchased will decline by 40%. Determine whether the contractor's offer should be accepted. Provide all supporting calculations. BUSINESS ACCOUNTING MANAGERIAL ACCOUNTING Answer & Explanation Solved by verified expert Rated Helpful Answered by User517 Please go through the following attachment for solution. Step-by-step explanation

Image transcription text 1. Offer from Provincial Bus Company. 3. Contractor's Offer. a} Calculation of profit as per the exisitng Cost structure. Calculation of Total cost under two cases. Particulars Amount Amount Particulars Company Contractor Selling Price 1260 Manufacturing Cost Less: Variable Cost Direct Material 16D 160 Direct Material 16!) Direct Labor 200 200 Direct Labor ZDD Variable Overhead 4D 40 Variable Overhead 40 Fixed Overhead 200 160 2DD'"80%:160 Variable Marketing Cost 60 Variable Marketing Cost 60 36 60*609'6 = 36 Total Variable Cost 460 Fixed Marketing Cost 14D 14D Contribution 800 Total Cost 300 736 Less: Fixed Cost Overhead 200 Cost per unit is lower in case of Contractor. This offer will reduce the cost of the product. Marketing Cost 140 lt is suggested to Accept the Contractors offer. Total Fixed Cost 340 Profit 46D Manufacturing Cost Direct Material 160 Direct Labor ZDD Variable Overhead 4D This cost is to be incurred even the bus company Fixed Overhead — provided the engine guys. "otal Manufacturing Cost 400 Variable Marketing Cost 6:) "otal 46D "his Cost is not requried to 46!) Selling Price per unit 1,260 Less Cost not required 460 New selling Price SOD Units 300 Sales Value 2,40,000 Fee received from Bus Company 11,80,000 Provincial Bus Company pay fee more than the sale value. So, it is suggested to accept the offer. Show less

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