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Chrome File Edit View History Bookmarks People Window Help MCH10 Homework C fi Dezto.mheducation.com/hm.tpx Apps e Apple a Amazon "Hotmail Google n Facebook YouTubeN Netflix Kickass Cocc Apps Apple Amazon . . For many years Futura Company has purchased the starters that it installs in its standard line of farm ractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 65,000 starters needed would be greater than the current $15.95 per unit purchase price: Per UnitTotal $ 6.00 Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent 2.50 1.50 $ 97,500 1.10 S 71,500 0.30 0.50 32,500 Total product cost 11.90 A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery so that no new equipment would have to be purchased. The rent charge above is based on space utlized in the plant. The total rent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tear Required: 1. Determine the total relevant cost per unit if starters are made inside the company (Round your answer to 2 decimal places cost per unit

Explanation / Answer

Direct material 6 Direct labour 2.5 Supervision 1.5 Variable manufacturing overhead 0.3 relevant cost of each unit 10.3 Relevant cost for purchase of starter 15.95 Increase in profit 65000*(15.95-10.30) 367250

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