Homework Help is Here – Start Your Trial Now!
Business
Accounting
Futura Company purchases the 75.000 starters that it installs in its standard line of farm tractors from a supplier for the price of 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 $12.70 as shown below: Direct materials Direct labor Per Unit $ 7.00 2.00 1.80 1.10 Total Supervision Depreciation Variable manufacturing overhead Rent Total product cost If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $135,000) to oversee production. Howe 0.40 6.40 $ 12.70 $ 135,000 $ 82,500 $ 30,000

Futura Company purchases the 75.000 starters that it installs in its standard line of farm tractors from a supplier for the price of 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 $12.70 as shown below: Direct materials Direct labor Per Unit $ 7.00 2.00 1.80 1.10 Total Supervision Depreciation Variable manufacturing overhead Rent Total product cost If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $135,000) to oversee production. Howe 0.40 6.40 $ 12.70 $ 135,000 $ 82,500 $ 30,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Subject: acounting 

Futura Company purchases the 75,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.40 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 $12.70 as shown below. Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 7.00 2.00 1.80 1.10 0.40 0.40 $12.70 Total $ 135,000 $ 82,500 $ 30,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $135,000) 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 $83,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 75,000 starters instead of buying them from an outside supplier? Financial advantage $ 109,900
Transcribed Image Text:Futura Company purchases the 75,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.40 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 $12.70 as shown below. Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 7.00 2.00 1.80 1.10 0.40 0.40 $12.70 Total $ 135,000 $ 82,500 $ 30,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $135,000) 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 $83,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 75,000 starters instead of buying them from an outside supplier? Financial advantage $ 109,900
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Relevant cost analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS