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2) part b

2) part c

Exercise 13-10 (Algo) Make or Buy Decision (LO13-3] Futura Company purchases the 65,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.30 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 $11.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 5.00 2.20 1.70 $110,500 1.40 $ 91,000 0.60 0.30 $ 19,500 $11.20 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $110,500) 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 $90,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 65,000 starters instead of buying them from an outside supplier? Problem 13-24 (Algo) Shutting Down or Continuing to Operate a Plant (L013-2] Birch Company normally produces and sells 42,000 units of RG-6 each month. The selling price is $30 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $190,000 per month, and fixed selling costs total $46,000 per month Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company's sales to temporarily drop to only 9,000 units per month. Birch Company estimates that the strikes will last for two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, Birch Company is thinking about closing down its own plant during the strike, which would reduce its fixed manufacturing overhead costs by $43,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total $12,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months? 2. Should Birch close the plant for two months? 3. At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required What is the financial advantage (disadvantage) if Birch closes its own plant for two months? Required Required 2 > Keeping it opene Complete this question by entering your answers in the tabs below. Required 1 Repaired 2 Required 3 Should Birch close the plant for two months? Yes ONO Complete this question by entering your answers in the tabs below. Required 1 Required 2 Requindas At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open? Unit sales required for Birch to be indifferent