nswer and solution pls Motor Company manufactures 10,000 units of Part M-l each year for use in its production. The following total costs were reported last year: Direct materials P 20,000 Direct labor 55,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead 70,000 Total manufacturing cost P190,000 Valve Company has offered to sell Motor 10,000 units of Part M-l for P18 per unit. If Motor accepts the offer, some of the facilities presently used to manufacture Part M-l could be rented to a third party at an annual rental of P15,000. Additionally, P4 per unit of the fixed overhead applied to Part M-l would be totally eliminated. Should Motor Company accept Valve Company's offer, and why? a. No, because it would be P5,000 cheaper to make the part. b. Yes, because it would be P10,000 cheaper to buy the part. c. No, because it would be P15,000 cheaper to make the part. d. Yes, because it would be P25,000 cheaper to buy the part.
Answer and solution pls
Motor Company manufactures 10,000 units of Part M-l each year for use in its production. The following total costs
were reported last year:
Direct materials P 20,000
Direct labor 55,000
Variable manufacturing
Fixed manufacturing overhead 70,000
Total
Valve Company has offered to sell Motor 10,000 units of Part M-l for P18 per unit. If Motor accepts the offer,
some of the facilities presently used to manufacture Part M-l could be rented to a third party at an annual rental of
P15,000. Additionally, P4 per unit of the fixed overhead applied to Part M-l would be totally eliminated. Should
Motor Company accept Valve Company's offer, and why?
a. No, because it would be P5,000 cheaper to make the part.
b. Yes, because it would be P10,000 cheaper to buy the part.
c. No, because it would be P15,000 cheaper to make the part.
d. Yes, because it would be P25,000 cheaper to buy the part.
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