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Futura Company purchases the 40,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $8.40 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 $9.20 as shown below: Per Unit Total Direct materials 35 3.18 Direct labor 2.78 Supervision 1.58 5 68,803 Depreciation 1.08 5 48,888 Variable manufacturing overhead 6.58 Rent 3.39 5 12,800 Total product cost $ 9-23 If Futura decides to make the starters, a supervisor would have to be hired [at a salary of $60,000] to oversee production. However, the company has sufcient 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 $80,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage {disadvantage} of making the 40,000 starters instead of buying them from an outside supplier? ::| Explanation The financial advantage of making the 40,000 starters is computed as follows: Make Buy Cost of purchasing (40,606 units x $8.40 per unit) $ 336,808 Direct materials (40,800 units * $3.10 per unit) $ 124,060 Direct labor (40,800 units x $2.70 per unit) 108, 608 Variable manufacturing overhead 24,080 (40, 080 units * $0. 60 per unit) Supervision Total costs $ 316,808 $ 336,060 Financial advantage of making the starters $ 20,090