The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 3,500 engines, whereas its monthly production capacity is 7,000 engines. The current selling price per engine is $750. 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 $ 86 120 23 120 $349 Incremental benefit of the contract $ 38 83 121 $ 470 Required: Answer the following independent questions. 1-a. The Provincial Bus Company wishes to purchase 630 engines in October. The bus company is willing to pay a fixed fee of $420,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 630 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. 4

The Engine Guys produces specialized engines for "snow climber' buses. The company's normal monthly production volume is 3,500 engines, whereas its monthly production capacity is 7,000 engines. The current selling price per engine is $750. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Required: Answer the following independent questions. 1-a. The Provinclal Bus Compariy wishes to purchase 630 engines in October. The bus company is willing to pay a fixed fee of $420,000 and reimburse. The Engine Guys for all manufacturing costs incurred to manutacture 630 motors. Octobet is a busy month for The Engine Guys, and there are sutficient 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. 1-b. Indicate whether the Provinclal Bus Company's contract should be accepted. Yes No 2-a. An outside contractor is wiling to supply 1750 engines at a price of $360 per unit. If the offer is accepted, the company will make 1,750 engines in house and buy 1,750 engines from the contractor. The company's fixed manufacturing costs will decline by 20%6 and the variable marketing costs per unit on the 1,750 engines purchased will decline by 40%, Calculate the cost in each option. (Do not round intermediate calculations. Leave no celis blank - be certain to onter " O " wherever required.) 2-b. Determine whether the contractor's offer should be accepted