Motor Corporation manufactures machine parts for boat engines. The CEO, James Hamilton, is considering an offer from a subcontractor who wouldprovide 3,000 units of product AB100 for Hamilton at a price of $230,000. If Motor Corp. does not purchase these parts from the subcontractor it mustproduce them in-house with the following per-unit costs:Direct materials$ 40Direct labor25Variable overhead15Allocated fixed overhead4In addition to the above costs, if the company produces part AB100, it would incur incremental fixed overhead costs of approximately $10,000.Required:What would be the impact on short-term operating income if the company were to accept the offer from the subcontractor? Show calculations tosupport your answer.

Computation of impact on short - term operating income , if the company accept this offer from the…

Answered: What would be the impact on short-term…

What would be the impact on short-term operating income if the company were to accept the offer from the subcontractor? Show calculations to support your answer.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

Motor Corporation manufactures machine parts for boat engines. The CEO, James Hamilton, is considering an offer from a subcontractor who would
provide 3,000 units of product AB100 for Hamilton at a price of $230,000. If Motor Corp. does not purchase these parts from the subcontractor it must
produce them in-house with the following per-unit costs:
Direct materials
$ 40
Direct labor
25
Variable overhead
15
Allocated fixed overhead
4
In addition to the above costs, if the company produces part AB100, it would incur incremental fixed overhead costs of approximately $10,000.
Required:
What would be the impact on short-term operating income if the company were to accept the offer from the subcontractor? Show calculations to
support your answer.

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