Clyde contracts with Deephole Excavation, Inc., to dig an agricultural pond on his farm. Deephole is to keep the excavated grave
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Answer:
Walker shall continue to make such motors as there will be savings of $5,600
Explanation:
Variable cost per unit
Direct material = $44,000/4,000 = $11
Direct labor cost = $16,000/4,000 = $4
Variable overhead = $5
Total variable overhead = $20
Total Fixed cost = ($18 - $5) 4,000 units = $52,000
Total cost of manufacturing = $52,000 + $20 4,000
= $52,000 + $80,000 = $132,000
In case of buying
Fixed cost = $52,000 80% = $41,600
Variable cost = $24 4,000 = $96,000
Total cost in case of buying = $137,600
Since the cost of buying motors is expensive than manufacturing, Motors shall be manufactured by Walker Inc.
In that case it saves = $137,600 - $132,000 = $5,600