Question
XYZ Company makes industrial equipment. Each year it manufactures 25,400 motors which become a part of the equipment. The costs per motor are as follows:
XYZ Company makes industrial equipment. Each year it manufactures 25,400 motors which become a part of the equipment. The costs per motor are as follows: Direct materials $ 224.00 Direct labour $ 112.00 Variable manufacturing overhead $ 90.00 Fixed manufacturing overhead $ 315.00 Total cost per motor $ 741.00 An outside supplier has offered to sell XYZ the 25,400 motors it needs for $462.00 per motor. If XYZ accepts this offer, the facilities now being used to make the motors could be rented out for $523,000 per year. If the motors were purchased from the outside supplier, $95.00 of the fixed manufacturing overhead cost per motor would be avoidable. Required: If XYZ purchased the motors from the outside supplier, how much would operating profit change? A) increase by $5,196,600 B) decrease by $6,015,200 C) increase by $2,021,600 D) increase by $1,498,600 increase by $975,600 F) decrease by $7,084,200 G) decrease by $7,061,200
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