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For many years SouthCo has purchased the starters that it installs in its standard line of farr tractors. Due to a reduction in output, the
For many years SouthCo has purchased the starters that it installs in its standard line of farr 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 cost to produce the starters would be greater than the current $22 per unit purchase price: A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery that no new equipment would have to be purchased. The rent change above is based on space utilized in the plant. The total rent on the plant is $159,000 per period. Depreciation is due to obsolescence rather than wear and tear. a) Calculate the differential costs to make the parts. For any entries that do not need an amount, enter 0 b) Calculate the differential cost per unit to buy the parts. c) Determine the difference per unit in favor of purchasing starters from the outside supplier and decide if SouthCo should make or buy the starters. Differential income (loss) per unit in favor of purchasing from the outside supplier. SouthCo should (Select one) the starters
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