Ch. 12 Homework You received partial credit in the previous attempt. Check my wo
ID: 2579810 • Letter: C
Question
Ch. 12 Homework You received partial credit in the previous attempt. Check my work Futura Company purchases the 71,500 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.20 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $10.40 as shown below 15 Per Unit Total $ 4.00 Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost 2.88 1.60 $104,000 1.10 $ 71,500 0.40 .50 32,500 $18.40 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $104,000) 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 $81,000 per period. Depreciation is due to obsolescence rather than wear and tear Required: What is the financial advantage (disadvantage) of making the 71,500 starters instead of buying them from an outside supplier? Type here to searchExplanation / Answer
Per unit Total 71500 Make Buy Make Buy Direct materials 4 286000 Direct labor 2.8 200200 Supervision 104000 Variable manufacturing overhead 0.4 28600 Purchase cost 10.2 729300 Total cost 618800 729300 Financial advantage = 110500(729300-618800)