W5 A2 8

8.

Motor Company manufactures 10,000 units of Part M-l each year for use in its production. The following total costs were reported last year: Direct materials $20,000

Direct labor 55,000

Variable manufacturing overhead 45,000

Fixed manufacturing overhead 70,000 (+)

Total manufacturing cost $190,000 (=) Valve Company has offered to sell Motor 10,000 units of Part M-l for $18 per unit. If Motor accepts the offer, some of the facilities presently used to manufacture Part M-l could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to Part M-l would be totally eliminated. Should Motor Company accept Valve Company's offer, and why? A no because it would be $5000 cheaper to make the part B yes because it would be $10,000 cheaper to buy the part C no becuase it would be $15,000 cheaper to make the part D yes because it would be $25,000 cheaper to buy the part