Futura Company purchases 63,000 starters from a supplier at $12.00 per unit that it installs in farm tractors. Due to a reduction inoutput, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, thecompany's chief engineer is opposed to making the starters because the production cost per unit is $12.50, as shown below:TotalDirect materialsDirect laborSupervisionDepreciationVariable manufacturing overheadRentTotal product costPer Unit$5.003.201.901.100.800.50$ 12.50$ 119,700$ 69,300$ 31,500If Futura decides to make the starters, a supervisor would be hired (at a salary of $119,700) to oversee production. However, thecompany has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above isbased on space utilized in the plant. The total rent on the plant is $83,000 per period.Financial advantageRequired:What is the financial advantage (disadvantage) of making the 63,000 starters instead of buying them from an outside supplier?

A make-or-buy decision refers to the act of using cost-benefit to decide whether to buy a product or…

Answered: Futura Company purchases 63,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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