Question 4 Mikey Motor Ltd., manufactures a variety of motorcycles. The company has always produced all of the necessary parts for its motorcycles, including engines. An outside supplier has offered to sell one type of engine to Mikey Motor Ltd., for a cost of $31 per unit. To evaluate this offer, Mikey Motor Ltd., has garnered the following information relating to its own cost of producing the engine internally: Assuming the company has no alternative use for the facilities that are now being used to produce the engines, what would be the financial advantage (disadvantage) of buying 10,000 engines from the outside supplier? Direct Materials $15 Per Unit Variable manufacturing $4 overhead Fixed Direct Labor $10 $100,000 manufacturing overhead, traceable* 10,000 units per year $3 $150,000 $40,000 $30,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Fixed
manufacturing
overhead,
traceable*
Fixed
manufacturing
overhead,
allocated
TOTAL
O $10,000
($20,000)
O $120,000
$3
($81,000)
$6
*All traceable fixed manufacturing overhead costs are avoidable costs.
$30,000
$60,000
$38 $380,000
Transcribed Image Text:Fixed manufacturing overhead, traceable* Fixed manufacturing overhead, allocated TOTAL O $10,000 ($20,000) O $120,000 $3 ($81,000) $6 *All traceable fixed manufacturing overhead costs are avoidable costs. $30,000 $60,000 $38 $380,000
Question 4
Mikey Motor Ltd., manufactures a variety of motorcycles. The company has always produced
all of the necessary parts for its motorcycles, including engines. An outside supplier has
offered to sell one type of engine to Mikey Motor Ltd., for a cost of $31 per unit. To evaluate
this offer, Mikey Motor Ltd., has garnered the following information relating to its own cost of
producing the engine internally:
Assuming the company has no alternative use for the facilities that are now being used to
produce the engines, what would be the financial advantage (disadvantage) of buying 10,000
engines from the outside supplier?
Direct Materials $15
Per Unit
Variable
manufacturing $4
overhead
Fixed
Direct Labor $10 $100,000
manufacturing
overhead,
traceable*
10,000 units
per year
$3
$150,000
$40,000
$30,000
Transcribed Image Text:Question 4 Mikey Motor Ltd., manufactures a variety of motorcycles. The company has always produced all of the necessary parts for its motorcycles, including engines. An outside supplier has offered to sell one type of engine to Mikey Motor Ltd., for a cost of $31 per unit. To evaluate this offer, Mikey Motor Ltd., has garnered the following information relating to its own cost of producing the engine internally: Assuming the company has no alternative use for the facilities that are now being used to produce the engines, what would be the financial advantage (disadvantage) of buying 10,000 engines from the outside supplier? Direct Materials $15 Per Unit Variable manufacturing $4 overhead Fixed Direct Labor $10 $100,000 manufacturing overhead, traceable* 10,000 units per year $3 $150,000 $40,000 $30,000
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