Question

An 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 $23.05. 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:

Answer 1

This question is incomplete, I got the complete one from google as below:

The SP corporation makes 33,000 motors to be used in the production of its sewing machine. The average cost per motor at this level of activity is:

Direct materials $9.2

Direct labor $8.2

Variable manufacturing overhead $3.30

Fixed manufacturing overhead $4.25

Answer:

The annual financial advantage for the company as a result of making the motors rather than buying them from the outside supplier is $143,350.

Step-by-step explanation:

The differential analysis is as below :

Make Buy

Direct material 498200

Direct labour 451200

Variable manufacturing overhead 188000

Purchase 1280750

Total 1137400 1280750

Financial advantage = $1280750-1137400 = $143,350

Thus, the annual financial advantage for the company as a result of making the motors rather than buying them from the outside supplier is $143,350.

Answer 2

annual financial disadvantage = $77,550

Step-by-step explanation:

Currently SP corporation produces 33,000 motors with the following costs:

direct materials per unit $9.20

direct labor per unit $8.20

variable manufacturing overhead per unit $3.30

fixed manufacturing overhead per unit $4.25

total production costs per unit = $24.95

if the company decides to purchase the motor form an outside vendor, the relevant costs will be:

purchase cost $23.05

fixed manufacturing overhead per unit $4.25

total relevant costs per unit = $27.30

financial disadvantage of purchasing the motor form outside vendor = (relevant costs per unit - production costs per unit) x total units purchased = ($27.30 - $24.95) x 33,000 = $77,550