The SP Corporation makes 50,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: $10.90 $9.90 Variable manufacturing overhead $4.15 Fixed manufacturing overhead $ 5.10 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $28.15. If SP 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: O $367,500 O $255,000 Direct materials Direct labor O ($95,000) 160,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The SP Corporation makes 50,000 motors to be used in the production of its sewing machines. The average cost per motor at
this level of activity is:
$ 10.90
$9.90
Variable manufacturing overhead $ 4.15
Fixed manufacturing overhead $ 5.10
An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered
to SP Corporation for this motor is $28.15. If SP 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:
O $367,500
Direct materials
Direct labor
O $255,000
($95,000)
160,000
Transcribed Image Text:The SP Corporation makes 50,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: $ 10.90 $9.90 Variable manufacturing overhead $ 4.15 Fixed manufacturing overhead $ 5.10 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $28.15. If SP 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: O $367,500 Direct materials Direct labor O $255,000 ($95,000) 160,000
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