Futura Company purchases the 61,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather thanbuying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because theproduction cost per unit is $12.40 as shown below:Per UnitTotalDirect materials$ 6.002.501.601.200.50Direct laborSupervisionDepreciationVariable manufacturing overhead$ 97,600$ 73,200$ 36,6000.60$12.40RentTotal product costIf Futura decides to make the starters, a supervisor would have to be hired (at a salary of $97,600) 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 aboveis based on space utilized in the plant. The total rent on the plant is $89,000 per period. Depreciation is due to obsolescence ratherthan wear and tear.Required:What is the financial advantage (disadvantage) of making the 61,000 starters instead of buying them from an outside supplier?

If the cost of buying is more than the cost of making, then there will be financial advantage. If…

Futura Company purchases the 61,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50 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 $12.40 as shown below: Per Unit $ 6.00 Total Direct materials Direct labor 2.50 $ 97,600 $ 73,200 Supervision Depreciation Variable manufacturing overhead 1.60 1.20 0.50 0.60 Rent $ 36,600 Total product cost $12.40 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $97,600) 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 $89,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 61,000 starters instead of buying them from an outside supplier?

Futura Company purchases the 61,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50 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 $12.40 as shown below: Per Unit $ 6.00 Total Direct materials Direct labor 2.50 $ 97,600 $ 73,200 Supervision Depreciation Variable manufacturing overhead 1.60 1.20 0.50 0.60 Rent $ 36,600 Total product cost $12.40 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $97,600) 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 $89,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 61,000 starters instead of buying them from an outside supplier?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Meman
Futura Company purchases the 66,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.50 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 $11.40 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 4.00 3.50 1.90 1.10 0.50 0.40 $11.40 Total $ 125,400 $ 72,600 $ 26,400 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $125,400) 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 $88,000 per period.…
Urmilaben
Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.70 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 $12.90 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 6.00 3.00 1.50 1.30 0.70 0.40 $ 12.90 Total $ 106,500 $ 92,300 $ 28,400 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $106,500) 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.…
Walton Co. purchases the 400,000 compressors that it installs in its refrigerators from a Chinese company for the price of $26 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 mechanical engineer is opposed to making the compressors because the production cost per unit is $28 as shown below: Per unit Total Direct material 9.00 Direct labor 7.00 Supervisor's salary 4.50 $18,00,000 Depreciation on machinery 2.50 Rent 1.00 400,000 Variable manufacturing overhead 4.00 $16,00,000 Total production cost 28.00 If Walton Co. decides to make the compressors, a supervisor would have to be hired (at a salary of $18, 00,000) to oversee production. However, the company does not need to purchase any new equipment. The rent charge above is based on space utilized in the plant. The total rent on the factory is $24,00,000 per period. Required: What is the…
Futura Company purchases the 60,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.40 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 $11.20 as shown below: Per Unit Total Direct materials $ 5.00 Direct labor 2.50 Supervision 1.70 $ 102,000 Depreciation 1.10 $ 66,000 Variable manufacturing overhead 0.40 Rent 0.50 $ 30,000 Total product cost $ 11.20 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $102,000) 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…
Subject: acounting
Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $13.00 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 $14.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 7.00 3.00 B 1.90 $ 134,900 1.40 $ 99,400 0.50 0.40 $ 28,400 $14.20 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $134,900) 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 $82,000 per period.…
A3
Snow Company pays a production company to produce phones for them at a cost of $200 each. Variable costs total $120 per phone, and fixed expenses are $1,998,000. Snow Company currently sells the phones for $500. 1. Snow Company found a new company to produce phones at a lower cost of $185. Calculate breakeven point in units. 2. Predicted demand for its phones is 12,000 units. What is the lowest price that can be charged in order to earn a $198,000 profit? 3. Snow Company can sell 14,000 units, but has to increase advertising costs in order to stimulate the extra demand. Snow Company still wants to earn a $198,000 profit, by how much can Snow Co. increase advertising costs to help achieve its goal?
Bonita Company manufactures a product with a unit variable cost of $43 and a unit sales price of $75. Fixed manufacturing costs were $79500 when 7950 units were produced and sold, equating to $10 per unit. The company has a one-time opportunity to sell an additional 1000 units at $54 each in an international market, which would notaffect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order? $43000 $1000 $11000 $7950
Mallory’s Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further? a. $5 per unit profit b. $3 per unit loss c. $16 per unit profit d. $12 per unit loss