Ch.10 Warm-up Exercise Level Three-what\'s Due w | × Level Three-what\'s Due W O
ID: 2576237 • Letter: C
Question
Ch.10 Warm-up Exercise Level Three-what's Due w | × Level Three-what's Due W O | ezto.mheducation.com/hm.tpx For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 60,000 pnice: starters needed would be greater than the current $11.70 per unit purchase Per Unit Total Direct materials Direct labor $ 6.00 3.00 1.60 1.30 0.40 0.50 5 96,000 $ 78,000 Pariable manufacturing overhead 30.000 Total product cost $ 12.80 A supervisor would have to be hired to oversee production of the starters However, the company has sufficient idle tools and machinery so 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 $88.000 per period. Depreciation is due to obsolescence rather than wear and tear 1. Determine the tota! relevant cost per unit if starters are made inside the company (Round your answer to 2 decimal places cost per 2. Delermine the total relevant cost per unit it starters are purchased from an putside suppier (Round your answer to 2 decimal ptaces.) cost 3. What is the increrse or deoreaze in profits es e result of purchasing the startars from an outsida aupp er raiher than msking them gsige the company? iDo not round intermediate calculations Round your ansswer to the nearest dollar amount.) Type here to search 0Explanation / Answer
1. Relevant costs per unit if made:
=Direct material + direct labour +supervision +variable manufacturing overhead
=$6+$3+$1.60+$.40
=$11 per unit
2. Relevant cost per unit if purchased=$11.70 per unit
3. Differential profit if purchased:
= Cost to make - cost to purchase
=$11 -$11.70
=(.70) per unit
Total profit decrease by:
=$.70×60,000 units
=$42,000
Profit would decreases by $42,000 per period.