None Futura Company purchases the 68,000 starters that it installs in its standardline of farm tractors from a supplier for the price of $10.50 per unit. Due to areduction in output, the company now has idle capacity that could be usedto produce the starters rather than buying them from an outside supplier.However, the company's chief engineer is opposed to making the startersbecause the production cost per unit is $11.30 as shown below:Direct materialsDirect laborSupervisionDepreciationVariable manufacturing overheadRentTotal product costPer Unit$ 5.00Total2.501.90$ 129,2001.10$ 74,8000.500.30$ 20,400$ 11.30If Futura decides to make the starters, a supervisor would have to be hired(at a salary of $129,200) to oversee production. However, the company hassufficient idle tools and machinery such that no new equipment would haveto be purchased. The rent charge above is based on space utilized in theplant. The total rent on the plant is $84,000 per period. Depreciation is dueto obsolescence rather than wear and tear.Required:What is the financial advantage (disadvantage) of making the 68,000starters instead of buying them from an outside supplier?

Answer:-Make or buy decision meaning:- "Make or buy" decision is an effective method for an…

Futura Company purchases the 68,000 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 $11.30 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 5.00 2.50 1.90 $ 129,200 1.10 $ 74,800 0.50 0.30 $ 20,400 $ 11.30 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $129,200) 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. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 68,000 starters instead of buying them from an outside supplier?

Futura Company purchases the 68,000 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 $11.30 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 5.00 2.50 1.90 $ 129,200 1.10 $ 74,800 0.50 0.30 $ 20,400 $ 11.30 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $129,200) 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. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 68,000 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

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