Barrus Corporation makes 40,000 motors to be used in the productions of its powe

Question

Barrus Corporation makes 40,000 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: $9.90 $8.90 $3.65 $4.60 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead This motor has recently become available from an outside supplier for $25.15 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.

Explanation / Answer

If company makes the motor then its income will be higher by 108,000 as compared to purchasing it Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up   Statementshowing Computations Paticulars Make Buy Incremental Direct Materials = 40,000*9.90       396,000.00      (396,000.00) Direct Labour = 40,000*8.90       356,000.00      (356,000.00) Variable manufacturing overhead = 40000*3.65       146,000.00      (146,000.00) Purchase cost = 40000*25.15     1,006,000.00     1,006,000.00 Total relevant cost       898,000.00     1,006,000.00         108,000.00

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