Derby IncManufactures a Product Which Contains a Small Motor The Required Volume of Output to Produce the Motors Will

question 100

Multiple Choice

Derby Inc.manufactures a product which contains a small motor.The company has always purchased this motor from a supplier for $125 each.Derby recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it.The company prepared the following per unit cost projections of making the motor,assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. $\begin{array}{lr}\text { Direct material } & \$38 \\\text { Direct labor } & 50 \\\text { Overhead (fixed and variable) } & 75 \\\hline\text { Total } & \$ 163 \\\hline \end{array}$ The required volume of output to produce the motors will not require any incremental fixed overhead.Incremental variable overhead cost is $21 per motor.What is the effect on income if Derby decides to make the motors?

• A)Income will decrease by $16 per unit.
• B)Income will increase by $16 per unit.
• C)Income will increase by $23 per unit.
• D)Income will decrease by $23 per unit.
• E)Income will increase by $39 per unit.

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Definitions:

Amortization Table

A complete schedule of periodic blended loan payments, showing the amount of principal and the amount of interest that comprise each payment so that the loan will be paid off at the end of its term.

Unpaid Principal

The portion of a loan amount that remains to be paid off by the borrower, excluding any interest or other charges.

Property Taxes

Taxes assessed on real estate by the local government, based on the property's value.

Percent Increase

The percentage by which a quantity grows over a specific period of time.