Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 11, Problem 10E
Make or Buy Decision
Futura Company purchases the 40,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $840 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 $9.20 as shown below:
If Futura decides to make the starters, a supervisor would has to be hired (at a salary of $60,000) 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 $80,000 per period. Depreciation is due to obsolescence rather than near and tear.
Required:
What is the financial advantage (disadvantage) of making the 40,000 starters instead of buying them from an outside supplier?
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Futura Company purchases the 64,000 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 $13.60 as shown below:
Per UnitTotalDirect materials$ 6.00 Direct labor3.20 Supervision1.90$ 121,600Depreciation1.30$ 83,200Variable manufacturing overhead0.70 Rent0.50$ 32,000Total product cost$ 13.60
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $121,600) 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…
Futura Company purchases the 67,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.40
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 $12.10 as shown below:
Per Unit
$ 5.00
3.00
Total
Direct materials
Direct labor
Supervision
Depreciation
Variable manufacturing overhead
Rent
Total product cost
1.90
1.30
0.40
$ 127,300
$ 87,100
e.50
$ 12.10
$ 33,500
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $127,300) 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 $84,000 per perlod.…
Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.60
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 $12.40 as shown below:
Per Unit
Total
$ 5.00
Direct materials
Direct labor
2.80
Supervision
Depreciation
Variable manufacturing overhead
$ 133,000
$ 98,000
1.90
1.40
0.80
Rent
0.50
$ 35,000
Total product cost
$ 12.40
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $133,000) 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 $81,000 per period.…
Chapter 11 Solutions
Introduction To Managerial Accounting
Ch. 11 - What is a relevant cost?Ch. 11 - Define the following terms: incremental cost,...Ch. 11 - Are variable costs always relevant costs? Explain.Ch. 11 - Prob. 4QCh. 11 - “Variable costs and differential costs mean the...Ch. 11 - Prob. 6QCh. 11 - Prentice Company is considering dropping one of...Ch. 11 - Prob. 8QCh. 11 - What is the danger in allocating common fixed...Ch. 11 - Prob. 10Q
Ch. 11 - Give at least four examples of possible...Ch. 11 - Prob. 12QCh. 11 - Define the following terms: joint products, joint...Ch. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - The Excel worksheet form that appears below is to...Ch. 11 - The Excel worksheet form that appears below is to...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Prob. 9F15Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Prob. 13F15Ch. 11 - Prob. 14F15Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Identifying Relevant Costs Syahn, AB, is a Swedish...Ch. 11 - Prob. 2ECh. 11 - Make or Buy Decision Troy Engines, Ltd,...Ch. 11 - Special Order Decision Imperial Jewelers...Ch. 11 - Volume Trade-off Decisions Outdoor Luggage, Inc.,...Ch. 11 - Prob. 6ECh. 11 - Sell or Process Further Decisions Dorsey Company...Ch. 11 - Volume Trade-Off Decisions Barlow Company...Ch. 11 - Special Order Decision Delta Company produces a...Ch. 11 - Make or Buy Decision Futura Company purchases the...Ch. 11 - Make or Buy Decision Han Products manufactures...Ch. 11 - Volume Trade-Off Decisions Benoit Company produces...Ch. 11 - Prob. 13ECh. 11 - Identification of Relevant Costs Kristen Lu...Ch. 11 - Prob. 15ECh. 11 - Identification of Relevant Costs Bill has just...Ch. 11 - Prob. 17ECh. 11 - Prob. 18PCh. 11 - Dropping or Retaining a Segment Jackson Count...Ch. 11 - Sell or Process Further Decision (Prepared from a...Ch. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Make or Buy Decision Silven Industries, which...Ch. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Close or Retain a Store Superior Markets. Inc.,...Ch. 11 - Sell or Process Further Decisions Come-Clean...Ch. 11 - Make or Buy Decisions “In my opinion, we ought to...
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