Question: Barrus Corporation makes 30,000 motors to be used in productions of its power lawn mowers. The manufacturing cost for each motor at this level of activity is as follows;
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Direct materials
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$9.50
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Direct labor
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$8.60
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Variable manufacturing overhead
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$3.75
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Fixed manufacturing overhead
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$4.35
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This motor has recently become available from an outside supplier for $25 for each motor. If the firm decides not to make motors, none of the fixed manufacturing overhead would be avoidable & there would be no other use for facilities. If the firm decides to continue making the motor, how much higher or lower will the corporation's net operating income be than if motors are buy from the outside supplier?