The SP Corporation Makes 33,000 Motors to Be Used in the Production

question 417

Multiple Choice

The SP Corporation makes 33,000 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 $23.05. 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) ($62,700)
• B) $186,450
• C) 77,550
• D) $140,250

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Definitions:

Merchantable

A term that describes goods of a quality that are fit for sale or suitable for a particular purpose.

Bar of Soap

A solid piece of cleansing substance used for personal hygiene, typically formed into a rectangular shape.

Slip and Fall

Accidents that occur when a person slips, trips, or falls due to a hazardous condition on someone else's property.

Express Warranty

A clearly stated promise or guarantee by a seller regarding the quality or functionality of a product.