Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Futura Company purchases the 80.000 starters that it installs in its standard line of faran tractors from a supplier for the price of $12.10. per

image text in transcribed
Futura Company purchases the 80.000 starters that it installs in its standard line of faran tractors from a supplier for the price of $12.10. 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 $12.70 as shown below: Per Unit Total Direct materials $ 7.00 Direct labor 2.20 Supervision 1.50 $ 120,000 Depreciation 1.00 $ 80,000 Variable manufacturing overhead 0.40 Rent 0.60 $ 40.000 Total product cost $12.70 int If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $120,000) 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 s based on space utilized in the plant. The totalrent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tean Required: What is the financial advantage (disadvantage of making the 80.000 starters instead of buying them from an outside suppler

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_2

Step: 3

blur-text-image_3

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

Loose Leaf Fundamental Financial Accounting Concepts

Authors: Thomas Edmonds, Frances McNair, Philip Olds

8th Edition

0077433807, 978-0077433802

More Books

Students also viewed these Accounting questions

Question

Classify delivery styles by type.

Answered: 1 week ago