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Question: Jones and Sons Company makes 1,500 motors to be used in the production of its power boats. The manufacturing cost per motor at this level of activity is as follows:
Direct materials $190.00
Direct labour $172.00
Variable manufacturing overhead $75.00
Fixed manufacturing overhead $87.00
This motor has recently become available from an outside supplier for $500 per motor. If Jones and Sons decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Jones and Sons decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier?
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