S Corporation makes 41,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials Direct labor $10 $9 Variable manufacturing overhead $3.70 Fixed manufacturing overhead $4.65 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to S Corporation for this motor is $25.45. If S 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: a. $264,450 b. ($77,900) c. $190,650 d. $112,750
S Corporation makes 41,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials Direct labor $10 $9 Variable manufacturing overhead $3.70 Fixed manufacturing overhead $4.65 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to S Corporation for this motor is $25.45. If S 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: a. $264,450 b. ($77,900) c. $190,650 d. $112,750
Chapter10: Short-term Decision Making
Section: Chapter Questions
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Financial accounting

Transcribed Image Text:S Corporation makes 41,000 motors to be used in the production of its sewing
machines. The average cost per motor at this level of activity is:
Direct materials
Direct labor
$10
$9
Variable manufacturing overhead $3.70
Fixed manufacturing overhead
$4.65
An outside supplier recently began producing a comparable motor that could be used
in the sewing machine. The price offered to S Corporation for this motor is $25.45. If
S 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:
a. $264,450
b. ($77,900)
c. $190,650
d. $112,750
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