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John Boyd Corporation manufactures and sells 1,000 tractors each month.The primary component in each tractor is the motor.John Boyd has the monthly capacity to produce 1,300 motors.The variable costs associated with manufacturing each motor are shown below:
Fixed manufacturing overhead per month (for up to 1,300 units of production)averages $27,000.Joan Reid,Inc.has offered to purchase 200 motors from John Boyd per month to be used in its own outboard motors.
-If Joan Reid's order is rejected,what will be John Boyd 's average unit cost of manufacturing each motor?
A)$68 per unit
B)$70 per unit
C)$96 per unit
D)Some other amount

Question

[The following information applies to the questions displayed below.]
John Boyd Corporation manufactures and sells 1,000 tractors each month.The primary component in each tractor is the motor.John Boyd has the monthly capacity to produce 1,300 motors.The variable costs associated with manufacturing each motor are shown below:
  Fixed manufacturing overhead per month (for up to 1,300 units of production)averages $27,000.Joan Reid,Inc.has offered to purchase 200 motors from John Boyd per month to be used in its own outboard motors.
-If Joan Reid's order is rejected,what will be John Boyd 's average unit cost of manufacturing each motor?
A)$68 per unit 
B)$70 per unit 
C)$96 per unit 
D)Some other amount

Quizplus · Accepted Answer

If Joan Reid's order is rejected, the fixed costs will be spread over fewer units, increasing the average unit cost to $96 per unit.

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