Question

In: Accounting

The O.T. Company makes 35,000 motors to be used in the production of its sewing machines....

The O.T. Company makes 35,000 motors to be used in the production of its sewing machines. The cost per motor at this level of activity is:

Direct materials

$4.50

Direct labor

$4.60

Variable manufacturing overhead

$3.75

Fixed manufacturing overhead

$3.45

An outside supplier has offered to supply all the motors the company needs for $15 each. If O.T. Company decided not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. If O.T. Company decides to continue making the motor, how much higher or lower would net operating income be than if the motors are purchased from the outside supplier?

Select one:

a.

$75,250 higher.

b.

$45,500 lower.

c.

$311,500 higher.

d.

$120,750 higher.

Expert Solution

Answer :-

- Net operating income is $75250 higher in case of if O.T company decide to continue the manufacturing of motors.

ekkarill92 answered 2 years ago

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