Chapter 12 HW 2 Futura Company purchases the 60,000 starters that it Installs Ii

Question

Chapter 12 HW 2 Futura Company purchases the 60,000 starters that it Installs Iin its standard line of farm tractors from a supplier for the price of $13.10 per unit. Due to ? reduction in output, the company now has ide 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 $13.40 as shown below 0.83 points Bait Total 6.00 50 SupervisLon Depreeiation Variable panufacturing overhead 1.60 96,000 1.30 78,000 0.40 $ 24,000 Total product cost If Future decides to make the starters, a supervisor would have to be hired (at a salary of $96,000) to oversee production. However the company has sufficient idle tools and machinery such that no new equlpment would have to be purchased. The rent charge above ls based on space utilized in the plant. The total rent on the plant is $82000 per period, Depreciation ls due to obsolescence rathier than wear and teer Required What is the financial advantage (disadvantage) of making the 60,000 starters instead of buying them from an outside supplier?

Explanation / Answer

Differential analysis :

Financial advantage = (786000-702000) = $84000

make Buy Direct material 360000 Direct labour 210000 Variable manufacturing overhead 36000 Supervisor's salary 96000 Purchase cost 786000 Total 702000 786000

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