The Engine Guys produces specialized engines for snow climber buses. The company's normal monthly production volume...

 

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The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,000 engines, whereas its monthly production capacity is 14,000 engines. The current selling price per engine is $1,100. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Manufacturing costs: Direct materials Direct labour Variable overhead Fixed overhead Subtotal Marketing costs: Variable Fixed Subtotal Total unit cost. Costs per Unit for Engines $100 176 30 176 $482 Incremental benefit of the contract 244 55 121 176 $ 658 Required: Answer the following independent questions. 1-a. The Provincial Bus Company wishes to purchase 700 engines in October. The bus company is willing to pay a fixed fee of $840,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 700 motors. October is a busy month for The Engine Guys, and there are sufficient orders to operate at 100% capacity utilization. There will be no variable marketing costs on this government contract. Compute the incremental benefit of the contract. The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 7,000 engines, whereas its monthly production capacity is 14,000 engines. The current selling price per engine is $1,100. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows: Manufacturing costs: Direct materials Direct labour Variable overhead Fixed overhead Subtotal Marketing costs: Variable Fixed Subtotal Total unit cost. Costs per Unit for Engines $100 176 30 176 $482 Incremental benefit of the contract 244 55 121 176 $ 658 Required: Answer the following independent questions. 1-a. The Provincial Bus Company wishes to purchase 700 engines in October. The bus company is willing to pay a fixed fee of $840,000 and reimburse The Engine Guys for all manufacturing costs incurred to manufacture 700 motors. October is a busy month for The Engine Guys, and there are sufficient orders to operate at 100% capacity utilization. There will be no variable marketing costs on this government contract. Compute the incremental benefit of the contract.

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