Exercise 6-10 (Algo) Make or Buy Decision (LO6-3) Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.7 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 $12.80 as shown below: Per Unit Total Direct materials Direct labor Supervision $ 140,600 Depreciation Variable manufacturing overhead Rent 0.50 537,000 Total product cost $6.00 2.5 1.90 1.20 0.70 $88,800 $ 12.80 of Futura decides to make the starters, a supervisor would have to be hired (at a salary of $140,600) 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 abov is based on space utilized in the plant. The total tent on the plant is $88.000 per period. Depreciation is due to obsolescence rather than wear and tear Required: What is the financial advantage (disadvantage) of making the 74,000 starters Instead of buying them from an outside supplier? Financial advantage 185 000 Exercise 6-10 (Algo) Make or Buy Decision (L06-3) Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $1170 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 $12.80 as shown below: Per unit Total Direct materials $ 0.00 Direct labor 2.50 Supervision $140,000 Depreciation 1.20 $ 38,800 Variable manufacturing overhead 0.70 $ 37,000 Total product cost $12.10 1.90 Rent 0.50 If Futura decides to make the starters a supervisor would have to be hired at a salary of $140,600) to oversee production. However, the company has sufficient die 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 tent on the plant is $88,000 per perlod Depreciation is due to obsolescence rother than wear and tear Required: What is the financial advantage (disadvantage) of making the 74,000 starters instead of buying them from an outside supplier? inancial advantage $ 185.000