Check my work Futura Company purchases the 62,000 starters that it installs in i
ID: 2560293 • Letter: C
Question
Check my work Futura Company purchases the 62,000 starters that it installs in its standard lin per unit. Due buying them from an outside supplier production cost per unit is $11.00 as shown below: e of farm tractors from a supplier for the price of $10.60 to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than . However, the company's chief engineer is opposed to making the starters because the s 4.00 Direct labor 3.00 1.90 117,800 1.30 80,600 0.60 0.50 31,000 Variable manufaeturing overhead Total product cost $11.00 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $117,800) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $90,000 per period. Depreciation is due to obsolescence rather than wear and tear What is the financial advantage (disadvantage) of making the 80,600 starters instead of buying them from an outside supplier? Prey 10f 21 Next > 3 MacBook AirExplanation / Answer
Futura Company
Financial advantage: $124000
The financial advantage of making 80600 starters is $124000.
Depreciation is an irrelevant sunk cost that will not change whether starters are made or bought and hence not considered.
Rent is an allocated cost and is irrelevant as it will not change between the alternatives.
Please post independent questions separately. Thank you.
Make Buy Net Advantage(Disadvantage) Per unit Total cost Per unit Total cost Direct materials 4 322400 -322400 Direct labor 3 241800 -241800 Variable manufacturing overhead 0.6 48360 -48360 Supervision 117800 -117800 Purchase price 10.6 854360 854360 Net advantage / (disadvantage) $ 730360 854360 124000