Munabhai Futura Company purchases the 75.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.90per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather thanbuying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because theproduction cost per unit is $11.10 as shown belowDirect materialsDirect laborSupervisionDepreciationVariable manufacturing overheadRentTotal product costPer Unit$ 5.002.501.701.000.400.50$11.10TotalFinancial advantage$ 127,500$ 75,000$ 37,500If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $127,500) 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 aboveis based on space utilized in the plant. The total rent on the plant is $83,000 per period. Depreciation is due to obsolescence ratherthan wear and tearRequired:What is the financial advantage (disadvantage) of making the 75,000 starters instead of buying them from an outside supplier?

The making cost per unit comprises the variable costs and fixed costs. The differential analysis is…

Futura Company purchases the 75.000 starters that it installs in its standard line of farm tractors from a suppiler for the price of $10.90 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 $1110 as shown below Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $5.00 2.50 1.70 1.00 0.40 0.50 $ 11.10 Financial advantage Total $ 127,500 $ 75,000 $ 37,500 ir Futura decides to make the starters, a supervisor would have to be hired (at a salary of $127,500) 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?

Futura Company purchases the 75.000 starters that it installs in its standard line of farm tractors from a suppiler for the price of $10.90 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 $1110 as shown below Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $5.00 2.50 1.70 1.00 0.40 0.50 $ 11.10 Financial advantage Total $ 127,500 $ 75,000 $ 37,500 ir Futura decides to make the starters, a supervisor would have to be hired (at a salary of $127,500) 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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EA: Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special...

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