Futura Company purchases the 67.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.40 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 $12.10 as shown below: Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 5.00 3.00 1.90 1.30 0.40 0.50 $ 12.10 $ 127,300 $ 87,100 $ 33,500 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $127,300) 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 $84,000 per perlod. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 67.000 starters Instead of buying them from an outside supplier? $ 4,300 Insurance Garage rent $ 1,200 $ 600 Kristen Lu purchased a used automobile for $21,500 at the beginning of last year and incurred the following operating costs: Depreciation ($21,500 + 5 years) $2,300 Automobile tax and license Variable operating cost $ 0.69 per mile The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $4,300. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 21,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) Average foxed cost per mile Variable operating cost per mile Average cost per milo $ 0.00 2. Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Variable operating costs Depreciation ? Automobile tax ? License costs Insurance costs
