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A Tractor Manufactory purchases the 40,000 of product X thats its installs in its standard line of farm tractors from a supplier for the price
A Tractor Manufactory purchases the 40,000 of product X thats its installs in its standard line of farm tractors from a supplier for the price of $8.4 per unit. Due to a reduction in outputthe company now has Idle capacity that could be used to produce the X rather than buying them from outside supplier. However, the companys Engineer is suggested to making the X product because the production cost per unit is $9.2 as shown below ..Per UnitTotal Direct Material...$3.10 Direct Labor $2.70 Supervision for Product $ 1.50 $60,000 Depreciation ... $1.00 ........ $40,000 Variable Manufacture Overhead$ Office Rent...... $0.30 ......... $12,000 Total production cost $9.20 if the factory decides to make product Xa supervisor would have to be hired at a salary of $60 to oversee production. However the factory has sufficient Idle tools and machinery such that no new equipment would have to be purchased. The Rent chargers above is based on space utilized in the plant and not related to producing product X. Depreciation is a Sunk cost. Analyze what is the financial advantage (disadvantage) of making instead of buying? (show Your full answer)
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