Use the following to answer questions 10-12: John Stag Corporation manufactures

Question

Use the following to answer questions 10-12:

John Stag Corporation manufactures and sells 1,000 tractors each month.  The primary component in each tractor is the motor. John Stag has the monthly capacity to produce 1,300 motors.  The variable costs associated with manufacturing each motor are shown below:

Direct materials....................................................................

$22

Direct labor..........................................................................

14

Variable manufacturing overhead..........................................

27

Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $26,000.  Mary Doe, Inc., has offered to purchase 200 motors from John Stag per month to be used in its own outboard motors.

      10.   Refer to the information above.   If Mary Doe's order is rejected, what will be John Stag's average unit cost of manufacturing each motor?

Answer

                                              

                                  

            

Direct materials....................................................................

$22

Direct labor..........................................................................

14

Variable manufacturing overhead..........................................

27

Explanation / Answer

Answer

A) $83. D) Some other amount. 11. Refer to the information above. What is the incremental cost of producing each additional motor?

Answer

B) $63.
12. Refer to the information above. Assuming John Stag wants to earn a pretax profit of $10,000 on this special order, what price must it charge Mary Doe?

Answer A) $62.

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