10.00 points Problem 9-15 Determining Whether to Accept a Special Order and Whet
ID: 2546478 • Letter: 1
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10.00 points Problem 9-15 Determining Whether to Accept a Special Order and Whether to Make or Buy (LO1 - CC4, 5) The Engine Guys produces specialized engines for "snow climber buses. The company's normal monthly production volume is 9,500 engines, whereas its monthly production capacity is 19,000 engines. The current selling price per engine is $1,350. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Costs per Unit for Engines Direct materials Direct labour Variable overhead Fixed overhead $ 110 216 216 577 35 Subtotal Marketing costs: Fixed Subtotal Total unit cost 149 217 794 Required Answer the following independent questions 1-a. The Provincial Bus Company wishes to purchase 750 engines in October. The bus company is willing to pay a flxed fee of $1,140,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 750 motors. October is a busy month for The Engine Guys, and there are sufficient orders to operate at 100% capacity utilization. There will be no variable marketing costs on this govenment contract. Compute the incremental benefit of the contract l benefit of theExplanation / Answer
1a Engines sold 750 Per unit Sales revenue 1140000 1520 Manufacturing cost Direct material 82500 110 Direct labor 162000 216 Manufacturing overheads 26250 35 Total cost 270750 361 Increment benefit for the contract 869250 1159 1b Yes 4750 make 2a 4750 buy Make 9500 units Purchase cost 3078000 Variable manufacturing (4750*361) 1714750 3429500 (9500*361) Fixed manufacturing (2052000*80%) 1641600 2052000 (9500*216) Variable marketing (4750*68+4750*68*60%) 516800 646000 (9500*68) Fixed marketing 1415500 1415500 (9500*149) Cost of options 8366650 7543000 Difference in favour of make option 823650 (8366650-7543000)
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