Question

The sp corporation makes 31,000 motors to be used in the production of its sewing machines. the average cost per motor at this level of activity is:direct materials$ 9.00direct labor$ 8.00variable manufacturing overhead$ 3.20fixed manufacturing overhead$ 4.15an outside supplier recently began producing a comparable motor that could be used in the sewing machine. the price offered to sp corporation for this motor is $22.45. if sp corporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. direct labor is a variable cost in this company. the annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be: multiple choice(

-$58,900
-$168,950
-$69,750
-$128,650

Answer 1

The SP Corporation will have an annual financial disadvantage of $58,900 if they decide to make the motors in-house instead of purchasing them from the outside supplier, as the cost per motor in-house is higher by $1.90. Therefore correct option is A

Step-by-step explanation:

The SP Corporation needs to determine the financial advantage or disadvantage of making their own motors versus buying them from an outside supplier.

The cost to make one motor consists of direct materials at $9.00, direct labor at $8.00, variable manufacturing overhead at $3.20, and fixed manufacturing overhead at $4.15, summing up to a total of $24.35 per motor.

On the other hand, the outside supplier offers motors at $22.45 each. To calculate the annual financial impact, we should multiply the cost difference per motor by the total number of motors produced (31,000).

Cost per motor if made in-house: $9 + $8 + $3.20 + $4.15 = $24.35
Cost per motor if bought externally: $22.45
Difference per motor: $24.35 - $22.45 = $1.90
Annual financial impact: 31,000 motors × $1.90 = $58,900

Therefore, the SP Corporation will face an annual financial disadvantage of $58,900 if they choose to make the motors in-house rather than buying from the external supplier.