Futura Company purchases the 68,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.50 per unit. The company is looking at making the product instead of buying from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $13.00 as shown below: Direct materials Direct labor Supervision * Depreciation ** Variable manufacturing overhead Rent *** Total product cost Per Unit $ 6.00 3.20 1.90 1.20 0.30 0.40 $ 13.00 *If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $129,200) to oversee production. ** The company has sufficient idle tools and machinery such that no new equipment would have to be purchased. *** The rent charge is the amount that would be allocated to this product 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 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 $12.50 per unit. The company is looking at making the product instead of buying from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $13.00 as shown below: Direct materials Direct labor Supervision * Depreciation Variable manufacturing overhead Rent * Total product cost Per Unit $ 6.00 3.20 1.90 1.20 0.30 0.40 $ 13.00 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $129,200) to oversee production. The company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge is the amount that would be allocated to this product 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 68,000 starters instead of buying them from an outside supplier?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 5P

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