y besion (6 points) Socko Enterprises manufactures carpet cleaning robots. The f

Question

y besion (6 points) Socko Enterprises manufactures carpet cleaning robots. The following cost data relates to Socko's internal production of the motors used in the robot: Direct materials Direct labor Variable MOH Fixed MOH Total Manufacturing cost $24 per motor $2 per motor $2 per motor $5 per motor S15 per motor An outside supplier has offered to sell motors to Socko for S20 per motor, 20% of the fixed manufacturing overhead will not be affected by a decision to purchase the motor from the outside supplier. Socko uses 3,000 motors annually. If Socko buys the motors from the outside supplier, the facilities currently used to produce motors could be used to generate an annual profit of $15,000. Requires: Determine whether the motor should continue to be produced in-house or purchased from the outside supplier. Compute the cost advantage for your choice. Show ALL your work!

Explanation / Answer

It should be purchased from outside market due to saving of $18000 annually.

Make Amt Buy Amt Direct Material              2.00 Cost of Purchase         20.00 Direct Labor              2.00 Income Per Unit (15000/3000)         (5.00) Variable Overhead              5.00 Relevant Fixed Cost (15 x 80%)            12.00 Total Cost            21.00         15.00 Savings (21-15) x 3000 18000

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