Complete the required simple accounting question. Per Unit Total 2.70 1.50 $60,0

Question

Complete the required simple accounting question. Per Unit Total 2.70 1.50 $60,000 1.00 $40,000 0.60 Variable manufacturing overhead A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery 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: Prepare computations showing how much profits will increase or decrease as a result of making the starters.

Explanation / Answer

Computation to show how much profits will increase or decrease as a result of making the starters:

Profits will increase by $ ( 336,000 - 316,000) = $ 20,000 as a result of making the starters. There will be a cost saving of $ 0.50 per unit of starter if it is made, and not outsourced.

Make Buy $ $ Purchase cost ( 40,000 x 8.40) 336,000 Direct materials ( 40,000 x 3.10) 124,000 Direct labor 108,000 Supervision 60,000 Variable manufacturing overhead 24,000 Total cost 316,000 336,000

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