Exercise 12-10 Make or Buy Decision [LO12-3) Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.60 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 $10.70 as shown below: 50 points Per Unit Total $ 5.00 Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent 2.00 1.70 $120,700 1.40 $ 99,400 0.60 0.40 28,400 eBook Total product cost $10.70 Print If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $120,700) 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 $85,000 per period. Depreciation is due to obsolescence rather than wear and tear References Required What is the financial advantage (disadvantage) of making the 99,400 starters instead of buying them from an outside supplier