Henderson Manufacturing Inc.
Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 6000 motors are manufactured each year, the motor costs per unit are as follows:
$\begin{array}{lr}
\text { Direct materials } &\$3\
\text {Direct labour } &4\
\text { Variable overhead } &5\
\text { Fixed overhead } &8\
\end{array}$

Plymouth Inc. has offered to sell Henderson 6000 motors for $15 per unit. If Henderson accepts the offer, 60% of the fixed overhead currently allocated to the motors could be avoided.

-What are the relevant costs per unit of Henderson manufacturing the motors themselves?

Question

Henderson Manufacturing Inc.
Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 6000 motors are manufactured each year, the motor costs per unit are as follows:
$\begin{array}{lr}
  \text { Direct materials } &\$3\
 \text {Direct labour  } &4\
 \text { Variable overhead } &5\
 \text { Fixed overhead } &8\
\end{array}$

Plymouth Inc. has offered to sell Henderson 6000 motors for $15 per unit. If Henderson accepts the offer, 60% of the fixed overhead currently allocated to the motors could be avoided.

-What are the relevant costs per unit of Henderson manufacturing the motors themselves?

Quizplus · Accepted Answer

The relevant costs per unit of Henderson manufacturing the motors themselves are the variable costs, which are direct materials, direct labor, and variable overhead. The fixed overhead is not relevant because it would be avoided if Henderson accepts Plymouth's offer. Therefore, the relevant costs per unit are $3 + $4 + $5 = $12.

Henderson Manufacturing Inc Plymouth Inc