**Futura Company Cost Analysis:**Futura Company purchases 66,000 starters, installed in its farm tractors, from a supplier at $10.50 each. A reduction in output has left unused capacity that could produce these starters internally. Despite opposition due to the $11.40 production cost per unit, here is the cost breakdown:**Cost per Unit Breakdown:**- Direct materials: $4.00- Direct labor: $3.50- Supervision: $1.90, totaling $125,400- Depreciation: $1.10, totaling $72,600- Variable manufacturing overhead: $0.50- Rent: $0.40, totaling $26,400**Total product cost per unit: $11.40**If production is internal:- A supervisor at a $125,400 salary is needed.- No new equipment required as tools and machinery are available.- Rent is based on plant space, totaling $88,000, and depreciation is due to obsolescence.---**Required:****Financial Question:** What is the financial advantage (disadvantage) of making the 66,000 starters instead of buying them from an outside supplier?(Provide calculations and analysis based on the above data in the response areas.)

The Companies evaluate the cost of producing the item internally versus the cost of purchasing it…

Answered: Futura Company purchases the 66,000…

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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Futura Company purchases the 66,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $13.20 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 $14.10 as shown below. Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per unit $ 7.00 2.50 1.90 1.40 0.70 0.60 $14.10 Total Financial (disadvantage) $125,400 $ 92,400* $ 39,600 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…
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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders. Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,929,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost…
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Futura Company purchases 80,000 starters from a supplier at $9.90 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 $10.80, as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Per Unit Total $ 4.00 2.20 1.90 $ 152,000 1.50 $ 120,000 0.70 0.50 $ 10.80 $ 40,000 Rent Total product cost If Futura decides to make the starters, a supervisor would be hired (at a salary of $152,000) 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 $87,000 per period. Required: What is the financial advantage (disadvantage) of making the…
Futura Company purchases the 66,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.10 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 $13.10 as shown below: Direct materials. Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 7.00 2.20 1.80 1.20 0.40 0.50 $ 13.10 Total $ 118,800 $ 79,200 $ 33,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $118,800) 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 and can't be avoided. The total rent on the plant is $81,000…
Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $54,000 per year, to solve the problem. With this extra worker, the company could produce and sell 2,900 more units per year. Currently, the selling price per unit is $26.00 and the cost per unit is $7.65. Direct materials $3.40 Direct labor 1.00 Variable overhead 0.45 Fixed overhead (primarily depreciation of equipment) 2.80 Total $7.65 Using the information provided, calculate the annual financial impact of hiring the extra worker. Profit $ 765 X Increase
Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,145,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,451,400 1,038,000 Commercial $ 702,000 749,500 Total $ 2,153,400 1,787,500 Management has determined that overhead costs are caused by three cost drivers. These…
Futura Company purchases the 68.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.00 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 $11.60 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $5.00 2.80 1.70 1.00 0.20 0.40 $11.60 Total $ 115,600 $ 68,000 $ 27,200 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $115,600) 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 $84,000 per period.…
Polar Bear Computer Co. outsources the production of motherboards for its computers. It is currently deciding which of two suppliers to use: Alpha or Beta. Due to differences in the product failure rates in the two companies, 10% of motherboards purchased from Alpha will be inspected and 30% of motherboards purchased from Beta will be inspected. The following data refer to costs associated with Alpha and Beta: Number of orders per year 90. 90 Annual motherboards demanded 19,000 19,000 Price per motherboard $96 $90 Ordering cost per order $10 $11 Inspection cost per unit $5 $5 Average inventory level 200 units 200 units Expected number of stockouts 200 600 Stockout cost (cost of rush order) per stockout $3 $7 Units returned by customers for replacing motherboards 90 900 Cost of replacing each motherboard $23 $23 Required annual return on investment 10% 10% Other carrying cost per unit per year $2.30 $2.30 Requirement 1. What is the relevant cost of purchasing from…
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