Exercise 12-10 Make or Buy a Component [LO12-3]

For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 55,000 starters needed would be greater than the current $13.20 per unit purchase price:

Conversations ' M Chaptei ,, @ Asupewisa'rwouiq h'avg x . G) ezt .mheducat ncom/hm. px '_ W 9 - Per U nit Total Direct materials 5K 6 00 Direct labor 3,20 Supervision 1.80 $ 99.000 Depreciation 150 $ 82.500 Variable manufacturing overhead 0,70 Rent 060 $ 33000 Total product cost $ 13 80 A supervisorwould have to be hired to oversee production of the starters However the company has sufcient Idle tools and machinery so 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: t Determine the total relevant cost per unit it starters are made inside the company (Round your answer to 2 decimal places.) 2 Determine the total relevant cost per unit if starters are purchased from an outside supplier (Round your answer to 2 decimal places.) 3. What is the increase or decrease in prots as a result oi purchasing the starters from an outside supplier rattler than making them inside the company? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)