Futura Company purchases 78,000 starters from a supplier at $11.40 per unit that it installs in farm tractors. Due to a reduction in output, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.30, as shown below: Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 6.00 2.20 1.90 1.20 0.70 0.30 $ 12.30 $ 148,200 $ 93,600 $ 23,400 If Futura decides to make the starters, a supervisor would be hired (at a salary of $148,200) 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 $84,000 per period. Required: What is the financial advantage (disadvantage) of making the 78,000 starters instead of buying them from an outside supplier?
Futura Company purchases 78,000 starters from a supplier at $11.40 per unit that it installs in farm tractors. Due to a reduction in output, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.30, as shown below: Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 6.00 2.20 1.90 1.20 0.70 0.30 $ 12.30 $ 148,200 $ 93,600 $ 23,400 If Futura decides to make the starters, a supervisor would be hired (at a salary of $148,200) 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 $84,000 per period. Required: What is the financial advantage (disadvantage) of making the 78,000 starters instead of buying them from an outside supplier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vikrambahi
Transcribed Image Text:Futura Company purchases 78,000 starters from a supplier at $11.40 per unit that it installs in farm tractors. Due to a reduction in
output, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, the
company's chief engineer is opposed to making the starters because the production cost per unit is $12.30, as shown below:
Total
Direct materials
Direct labor
Supervision
Depreciation
Variable manufacturing overhead
Rent
Total product cost
Per Unit
$ 6.00
2.20
1.90
1.20
0.70
0.30
$
12.30
$ 148,200
$ 93,600
$ 23,400
If Futura decides to make the starters, a supervisor would be hired (at a salary of $148,200) 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 $84,000 per period.
Required:
What is the financial advantage (disadvantage) of making the 78,000 starters instead of buying them from an outside supplier?
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