Honda Motors manufactures engines to be used in Honda Lawn Tractors. Honda is considering an offer from General Motors. General Motors has offered to supply Honda with all the needed motors for the tractors for $ 250 per motor. If the offer is accepted Honda can use the space to produce 20,000 more weed trimmers. The weed trimmers wholesale for $ 50 each and cost $ 24 in variable cost to produce and sell. Currently the cost to manufacture 1,500 motors is:

Direct labour $45,000

Direct materials $75,000

Variable overhead $ 30,000

Fixed overhead $ 130,000

If the offer to purchase from General Motors is accepted $20,000 of the fixed overhead can be eliminated. The remainder are need to manufacture the weed trimmers.

1. Should Honda accept General Motors offer?
2. What is the maximum price Honda should be willing to pay General Motors per motor.