The Engine Guys produces specialized engines for “snow climber” buses. The compa
ID: 2582082 • Letter: T
Question
The Engine Guys produces specialized engines for “snow climber” buses. The company’s normal monthly production volume is 8,500 engines, whereas its monthly production capacity is 17,000 engines. The current selling price per engine is $1,250. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows:
The Provincial Bus Company wishes to purchase 730 engines in October. The bus company is willing to pay a fixed fee of $1,020,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 730 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 government contract. Compute the incremental benefit of the contract.
An outside contractor is willing to supply 4,250 engines at a price of $600 per unit. If the offer is accepted, the company will make 4,250 engines in-house and buy 4,250 engines from the contractor. The company’s fixed manufacturing costs will decline by 20% and the variable marketing costs per unit on the 4,250 engines purchased will decline by 40%. Calculate the cost in each option. (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required.)
The Engine Guys produces specialized engines for “snow climber” buses. The company’s normal monthly production volume is 8,500 engines, whereas its monthly production capacity is 17,000 engines. The current selling price per engine is $1,250. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows:
Explanation / Answer
1-a.
Particulars
Non-availment of Contract
Availment of Contract
Sales
21250000
21357500
Less: Manufacturing Costs
Direct Material
1802000
1724620
Direct Labour
3400000
3254000
Variable Overhead
561000
536910
Fixed Overhead
1700000
1700000
7463000
7215530
Gross Profit
13787000
14141970
Less: Marketting Costs
Variable
1054000
1008740
Fixed
1173000
1173000
2227000
2181740
Net Profit
11560000
11960230
Net Incremental Benefit
400230
1.b - YES, accept the offer
2.a
Particulars
In House
Contractor
Manufacturing Costs
Direct Material
106
-
Direct Labour
200
-
Variable Overhead
33
-
Fixed Overhead
320
-
Sub Total
659
600
Marketing Costs
Variable
62
37.2
Fixed
138
138
Sub Total
200
175.2
Cost per unit
859
775.2
2.b - The offer should not be accepted because cost per unit is higher
Particulars
Non-availment of Contract
Availment of Contract
Sales
21250000
21357500
Less: Manufacturing Costs
Direct Material
1802000
1724620
Direct Labour
3400000
3254000
Variable Overhead
561000
536910
Fixed Overhead
1700000
1700000
7463000
7215530
Gross Profit
13787000
14141970
Less: Marketting Costs
Variable
1054000
1008740
Fixed
1173000
1173000
2227000
2181740
Net Profit
11560000
11960230
Net Incremental Benefit
400230
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.