The SP Corporation manufactures 33,000 motors to be used in the production of its sewing machines. The average cost per engine at this level of activity is:

Direct materials	ps	9.20
Direct labour	ps	8.20
Variable manufacturing overhead	ps	3.30
Fixed manufacturing costs	ps	4.25

A third party supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this engine is $23.05. If SP Corporation decides not to manufacture the motors, there would be no other use for the production facility and none of the fixed manufacturing overhead costs could be avoided. Direct labor is a variable cost in this company. 

 Required

What would be the annual financial advantage (disadvantage) to the company as a result of manufacturing the motors instead of purchasing them from the external supplier 

Answer rating: 100% (QA)

To determine the financial advantage or disadvantage of manufacturing the motors instead of purchasi... View the full answer