The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,500 engines, whereas its monthly production capacity is 15,000 engines. The current selling price per engine is $1,150. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Manufacturing costs: Direct materials Direct labour Variable overhead Fixed overhead Subtotal Marketing costs: Variable Fixed Subtotal Total unit cost " Costs per Unit for Engines Incremental benefit of the contract $ 102 184 31 184 $501 $ 58 127 185 $686 Required: Answer the following independent questions. 4 1-8. The Provincial Bus Company wishes to purchase 710 engines in October. The bus company is willing to pay a fixed fee of $900,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 710 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. Compute the incremental benefit of the contract. S 415,070
The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,500 engines, whereas its monthly production capacity is 15,000 engines. The current selling price per engine is $1,150. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Manufacturing costs: Direct materials Direct labour Variable overhead Fixed overhead Subtotal Marketing costs: Variable Fixed Subtotal Total unit cost " Costs per Unit for Engines Incremental benefit of the contract $ 102 184 31 184 $501 $ 58 127 185 $686 Required: Answer the following independent questions. 4 1-8. The Provincial Bus Company wishes to purchase 710 engines in October. The bus company is willing to pay a fixed fee of $900,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 710 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. Compute the incremental benefit of the contract. S 415,070
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please help me.
Thankyou.
Transcribed Image Text:N
1-b. Indicate whether the Provincial Bus Company's contract should be accepted.
O Yes
O No
2-a. An outside contractor is willing to supply 3,750 engines at a price of $552 per unit. If the offer is accepted, the company will make
3,750 engines in-house and buy 3,750 engines from the contractor. The company's fixed manufacturing costs will decline by 20% and
the variable marketing costs per unit on the 3,750 engines purchased will decline by 40%. Calculate the cost in each option. (Do not
round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required.)
Purchase cost
Variable manufacturing
Fixed manufacturing
Variable marketing
Fixed marketing
Cost of option
Difference in favour of make option
Buy 3,750
units and
make 3,750
units
Yes
No
Make 7,500
units
2-b. Determine whether the contractor's offer should be accepted?
Prev
Transcribed Image Text:The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,500
engines, whereas its monthly production capacity is 15,000 engines. The current selling price per engine is $1,150. The cost per unit of
manufacturing and marketing the engines at the normal volume is as follows:
Manufacturing costs:
Direct materials
Direct labour
Variable overhead
Fixed overhead
Subtotal
Marketing costs:
Variable
Fixed
Subtotal
Total unit cost
3
Costs per
Unit for
Engines
Incremental benefit of the contract
$102
184
31
184
$501
$ 58
127
185
$686
Required:
Answer the following independent questions.
1-8. The Provincial Bus Company wishes to purchase 710 engines in October. The bus company is willing to pay a fixed fee of
$900,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 710 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. Compute the incremental benefit of the contract.
$
415,070
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