The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 6,500 engines, whereas its monthly production capacity is 13,000 engines. The current selling price per engine is $1,050. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows:

02:17:52

Costs per Unit for Engines

Manufacturing costs:

Direct materials

$ 98

168

29

168

Direct labour

Variable overhead

Fixed overhead

Subtotal

$ 463

Marketing costs:

Variable

$52

116

168

Fixed

Subtotal

Total unit cost

$ 631

Required:

Answer the following independent questions.

16. The Provincial Bus Company wishes to purchase 690 engines in October. The bus company is willing to pay a fixed fee of $780,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 690 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.

Incremental benefif of the contract