Futura Company purchases 69,000 starters from a supplier at $12.40 per unit that it installs in farm tractors. Due to a reduction inoutput, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, thecompany's chief engineer is opposed to making the starters because the production cost per unit is $13.90, as shown below:Direct materialsDirect laborSupervisionDepreciationVariable manufacturing overheadRentTotal product costPer Unit$ 7.002.202.001.40Financial advantage0.700.60$ 13.90=TotalIf Futura decides to make the starters, a supervisor would be hired (at a salary of $138,000) to oversee production. However, thecompany has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above isbased on space utilized in the plant. The total rent on the plant is $89,000 per period.$ 138,000$ 96,600$ 41,400Required:What is the financial advantage (disadvantage) of making the 69,000 starters instead of buying them from an outside supplier?

The "make or buy" concept in cost management involves deciding whether to produce a product or…

Futura Company purchases 69,000 starters from a supplier at $12.40 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 $13.90, as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $7.00 2.20 2.00 1.40 0.70 0.60 $ 13.90 Financial advantage Total If Futura decides to make the starters, a supervisor would be hired (at a salary of $138,000) 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 $89,000 per period. 17 $ 138,000 $ 96,600 $ 41,400 Required: What is the financial advantage (disadvantage) of making the 69,000 starters instead of buying them from an outside supplier?

Futura Company purchases 69,000 starters from a supplier at $12.40 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 $13.90, as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $7.00 2.20 2.00 1.40 0.70 0.60 $ 13.90 Financial advantage Total If Futura decides to make the starters, a supervisor would be hired (at a salary of $138,000) 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 $89,000 per period. 17 $ 138,000 $ 96,600 $ 41,400 Required: What is the financial advantage (disadvantage) of making the 69,000 starters instead of buying them from an outside supplier?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...

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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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