Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Futura Company purchases 62,000 starters from a supplier at $9.40 per unit that it installs in farm tractors. Due to a reduction in output,

image text in transcribed

Futura Company purchases 62,000 starters from a supplier at $9.40 per unit that it installs in farm tractors. Due to a reduction in output, the company now has enough idle capacity to produce the starters rather than buying them from the supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $10.30, as shown below: Per Unit Total Direct materials $ 4.00 Direct labor Supervision Depreciation 2.50 1.80 $ 111,600 1.20 $ 74,400 Variable manufacturing overhead 0.40 Rent 0.40 $ 24,800 Total product cost $ 10.30 If Futura decides to make the starters, a supervisor would be hired (at a salary of $111,600) 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 above is based on space utilized in the plant. The total rent on the plant is $86,000 per period. Required: What is the financial advantage (disadvantage) of making the 62,000 starters instead of buying them from an outside supplier?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Ray Garrison, Eric Noreen, Peter Brewer

16th edition

1259307417, 978-1260153132, 1260153134, 978-1259307416

More Books

Students also viewed these Accounting questions

Question

2. Are they aware of the assumptions they are making?

Answered: 1 week ago

Question

LO12.2 Create research objectives that are specific and achievable.

Answered: 1 week ago