Question
SP Company makes 40,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity
SP Company makes 40,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is:
| Direct materials | $5.50 |
| Direct labour | $5.60 |
| Variable factory overhead | $4.75 |
| Fixed factory overhead | $4.45 |
An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Company for this motor is $18. If SP Company decides not to make the motors, there would be no other use for the production facilities and total fixed factory overhead costs would not change. Compute whether the company should buy this component from the supplier. You may use the (Excel spread sheet) to complete your answer.
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
9781266566899
