Question
Baron Corporation makes 47,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of
Baron Corporation makes 47,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of activity is as follows: Direct materials $10.60 Direct labor $9.60 Variable manufacturing overhead $4.00 Fixed manufacturing overhead $4.95 This motor has recently become available from an outside supplier for $27.25 per motor. If Baron decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Baron decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier? Assume that direct labor is a variable cost in this company. (Enter your answer as whole dollars. If your answer is a decrease, enter a minus sign first.)
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