49 The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 10,500 engines, whereas its monthly production capacity is 21,000 engines. The current selling price per engine is $1,450. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Manufacturing costs: Direct materials. Direct labour Variable overhead Fixed overhead Subtotal Marketing costs: Variable Fixed Subtotal Total unit cost Costs per Unit for Engines $ 114 232 37 232 $ 615 Incremental benefit of the contract $72 160 232 $847 Required: Answer the following independent questions. 1-a. The Provincial Bus Company wishes to purchase 770 engines in October. The bus company is willing to pay a fixed fee of $1,260,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 770 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. $ 706,370

1-b. Indicate whether the Provincial Bus Company's contract should be accepted. Yes No 2-a. An outside contractor is willing to supply 5,250 engines at a price of $696 per unit. If the offer is accepted, the company will make 5,250 engines in-house and buy 5,250 engines from the contractor. The company's fixed manufacturing costs will decline by 20% and the variable marketing costs per unit on the 5,250 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.) 2-b. Determine whether the contractor's offer should be accepted? Yes 1-b. Indicate whether the Provincial Bus Company's contract should be accepted. Yes No 2-a. An outside contractor is willing to supply 5,250 engines at a price of $696 per unit. If the offer is accepted, the company will make 5,250 engines in-house and buy 5,250 engines from the contractor. The company's fixed manufacturing costs will decline by 20% and the variable marketing costs per unit on the 5,250 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.) 2-b. Determine whether the contractor's offer should be accepted? Yes