Henderson Manufacturing Inc. manufactures electric scooters. The company current

Question

Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 6,000 motors are manufactured each year, the motor costs per unit are as follows:

Direct materials
$3
Direct labor
4
Variable overhead
5
Fixed overhead
8
Plymouth Inc. has offered to sell Henderson 6,000 motors for $15 per unit. If Henderson accepts the offer, 60% of the fixed overhead currently allocated to the motors could be avoided.
What are the relevant costs per unit of Henderson manufacturing the motors themselves?
Answer
a. $16.80
b. $15.20
c. $20.00
d. $12.00
2 points
Question 58

Refer to the Henderson Manufacturing Inc. information above. If Henderson accepts the offer to purchase 6,000 motors from Plymouth, net income will:
a. decrease by $1,200.
b. increase by $30,000.
c. decrease by $18,000.
d. increase by $10,800.
Answer
a. decrease by $1,200
b. increase by $30,000
c. decrease by $18,000
d. increase by $10,800

Explanation / Answer

#1 = d. The only relevant cost are all the costs except fixed overhead since this cost will incur whether you produce the 6000 motors or not. #2 = d. Manufacturing Cost= 6000 units x ($3+4+5+8)= $120,000 Buy Cost= 6000 units x $15 + (6000 x $8 fixed OH x 40% since you could only avoid 60%) = 109,200 120,000-109,200 = $10,800 ; it costs $10800 to buy the motors which means income increase $10,800.

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