Barrus Corporation makes 48,000 motors to be used in the productions of its powe

Question

Barrus Corporation makes 48,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of activity is as follows:

This motor has recently become available from an outside supplier for $27.55 per motor. If Barrus decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier? Assume that direct labor is a variable cost in this company.

$91,200 lower

$148,800 higher

$343,200 higher

$240,000 higher

Barrus Corporation makes 48,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of activity is as follows:

Explanation / Answer

No of Motors 48000 Direct Material 10.7 Direct Labour 9.7 Variable Manufacturing Overhead 4.05 Fixed Overhead 5 Total 29.45 Total 48000*29.45 1413600 If Purchased from outside 27.55 Fixed 5 Total 32.55 Total = 48000*32.55 1562400 Difference = 1562400-1413600 148800 Higher The correct answer is $ 148800 higher

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.