
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
![Exercise 11-10 (Algo) Make or Buy Decision [LO11-3]
Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.80
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
Total
$ 7.00
2.20
1.60
$ 118,400
1.00
$ 74,000
0.60
0.50
$ 12.90
$ 37,000
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $118,400) 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 $82,000 per period. Depreciation is due to obsolescence rather
than wear and tear.
Required:
What is the financial advantage (disadvantage) of making the 74,000 starters instead of buying them from an outside supplier?](https://content.bartleby.com/qna-images/question/531a964b-7464-43cc-a775-f5e415c0eaa2/01b1ab38-3735-4330-b6eb-03eaf4017a5e/csuagrd_thumbnail.jpeg)
Transcribed Image Text:Exercise 11-10 (Algo) Make or Buy Decision [LO11-3]
Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.80
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
Total
$ 7.00
2.20
1.60
$ 118,400
1.00
$ 74,000
0.60
0.50
$ 12.90
$ 37,000
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $118,400) 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 $82,000 per period. Depreciation is due to obsolescence rather
than wear and tear.
Required:
What is the financial advantage (disadvantage) of making the 74,000 starters instead of buying them from an outside supplier?
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps

Knowledge Booster
Similar questions
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education


Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,

Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON

Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education

Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education