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Futura Company purchases the 78,000 starters that it instals in its standard line of farm tractors from a supplier for the price of $13.40
Futura Company purchases the 78,000 starters that it instals in its standard line of farm tractors from a supplier for the price of $13.40 per unit. Due to a reduction in output, the company now has de 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 $13.70 as shown below Direct materials futal 17.00 D Direct la Supervision Depreciation Total product cost Futura decides to make the starters, a supervisor would have to be hired at a salary of $132,600) 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 utized in the plant. The total rent on the plant is $85,000 per period. Depreciation is due to obsolescence rather than wear and tear Required What is the financial advantage advantage of making the 78,000 starters instead of buying them from an outside supplier
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