Futura Company purchases $80,000$ starters from a supplier at $$9\mathrm{.}90$ 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\mathrm{.}80,$ as shown below:

If Futura decides to make the starters, a supervisor would be hired $($at a salary of $$152,000)$ 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 $$87,000$ per period.

Required:

What is the financial advantage $($disadvantage$)$ of making the $80,000$ starters instead of buying them from an outside supplier?

Financial advantageCabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following

estimated data for these cabinets:

If the kitchen cabinets are added as a new product line, the company expects that the contribution margin earned from selling its other

products will decrease by $$216,000$ per year.

Required:

What is the annual financial advantage $($disadvantage$)$ of adding the new line of kitchen cabinets?

What is the lowest selling price per unit that could be charged for the cabinets and still make it economically desirable for the

company to add the new product line?

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What is the annual financial advantage $($disadvantage$)$ of adding the new line of kitchen cabinets?

Financial advantage