Question

In: Accounting

Northeastern Company needs 1.000 motors in its manufacture of automobiles It can

Northeastern Company needs 1.000 motors in its manufacture of automobiles It can buy the motors from ve Motors for $1 200 ach Nertheastes plant can manulacre the ts for the owing c perun Direct materials $ 500 Direct manufacturing labor Varlable manufacturing overhead Fired manufacturing overhead Total 250 250 250 $1.350 If Northeasten buys the motors from Jive, 70% of the fixed manufacturing overhead will s be incumed folows your advice Should the company make or buy the motors? How much will Nertheastem save if OA buy, save $150.000 OB. buy, save $45.000 OC make save $140.000 O D. make save $95.000

Solutions

Expert Solution

Cost to buy the part ( 1,000 x $ 1200 )    $        1,200,000
     
Relevant costs to make :    
Variable costs:    
Direct materials  [ 1000 x 500 ]  $           500,000  
Direct manufacturing overhead [ 1000 x 250 ]  $           250,000  
Variable manufacturing overhead [ 1000 x 250 ]  $           250,000  
Total  $        1,000,000  
Avoidable fixed costs: [ $350 x 1000 x 30% ]  $           105,000  $        1,105,000
Savings if  part is manufactured [ 1,200,000 - 1,105,000 ]    $              95,000

 

Therefore, savings would be in the part is  manufactured = $95,000

Option D is correct.

 

 

 

 


Correct answer is option D = make, save $95,000

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