The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,000 engines, whereas its monthly production capacity is 14,000 engines. The current selling price per engine is $1,100. 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 $100 176 30 176 $ 482 $ 55 121 176 $ 658 Required: Answer the following independent questions.
The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,000 engines, whereas its monthly production capacity is 14,000 engines. The current selling price per engine is $1,100. 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 $100 176 30 176 $ 482 $ 55 121 176 $ 658 Required: Answer the following independent questions.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,000
engines, whereas its monthly production capacity is 14,000 engines. The current selling price per engine is $1,100. 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
$100
176
30
176
$482
Incremental benefit of the contract
$ 55
121
176
||
$ 658
Required:
Answer the following independent questions.
1-a. The Provincial Bus Company wishes to purchase 700 engines in October. The bus company is willing to pay a fixed fee of
$840,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 700 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.
Transcribed Image Text:1-b. Indicate whether the Provincial Bus Company's contract should be accepted.
O Yes
O No
0
2-a. An outside contractor is willing to supply 3.500 engines at a price of $528 per unit. If the offer is accepted, the company will make
3,500 engines in-house and buy 3,500 engines from the contractor. The company's fixed manufacturing costs will decline by 20% and
the variable marketing costs per unit on the 3,500 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 3,500
units and
make 3,500
units
O Yes
O No
Make 7,000
units
$
0
2-b. Determine whether the contractor's offer should be accepted?
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