The SP Corporation Makes 40,000 Motors to Be Used in the Production

question 162

Multiple Choice

The SP Corporation makes 40,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: 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 $18. 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:

• A) $276,000
• B) $86,000
• C) ($92,000)
• D) $178,000

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Definitions:

Antennae Division

A specialized unit or department within an organization focused on telecommunications or related technological functions, involving the use of antenna systems.

Outside Supplier

A third-party company that provides goods or services to another company as part of the purchasing company's supply chain.

Variable Expenses

Financial outlays that fluctuate based on the rate of business or manufacturing activities.

Valve Division

A NO.