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

question 101

Multiple Choice

The SP Company makes 40,000 motors to be used in the production of its sewing machines.The average cost per motor at this level of activity consists of:
$\begin{array}{|l|r|}\hline \text { Direct Materials } & \$ 5.50 \\\hline \text { Direct Labour } & \$ 5.60 \\\hline \text { Variable Manufacturing Overhead } & \$ 4.75 \\\hline \text { Fixed Manufacturing Overhead } & \$ 4.45 \\\hline\end{array}$
An outside supplier recently began producing a comparable motor that could be used in the sewing machine.The price offered to SP Company for this motor is $18.If SP Company decides not to make the motors,there would be no other use for the production facilities,and total fixed factory overhead costs would not change.If SP Company decides to continue making the motor,how much higher or lower would net income be than if the motors are purchased from the outside suppler? Assume that direct labour is a variable cost in this company.

• A) $86,000 higher.
• B) $92,000 lower.
• C) $178,000 higher.
• D) $276,000 higher.

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Definitions:

Corporate Objectives

Specific, measurable goals that a corporation aims to achieve within a certain time frame to fulfill its strategic vision.

Integration Supply Information

The process of combining and managing supply-related information across different stages of the supply chain for better coordination and decision-making.

Domestically

Pertaining to or occurring within one's own country or home, often used in contrast to international or foreign contexts.

Globally

Pertaining to activities, considerations, or impacts that span across the entire world, not limited to any single geographical area.