For many years Futura Company has purc tractors. Due to a reduction in output, t
ID: 2480023 • Letter: F
Question
For many years Futura Company has purc tractors. 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 55,000 starters needed would be greater than the current $15.85 per unit purchase price has purchased the starters that it installs in its standard line of farnm Per Unit Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent 6.00 2.50 1.80 S 99,000 1.10 60,500 0.80 0.50 27,500 Total product cost $ 12.70 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 utilized 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.) Relevant cost per unitExplanation / Answer
Answer:1 Total relevant cost of making the product:
11.1*55000=610500
Answer:2
Total relevant cost of buying this product:
$15.85 * 55,000 = $871,750
Answer:3
-610500-$871750 = $261250 (Decrease)
Differential cost Particulars Cost per unit Make Buy Direct material 6 6 Direct labor 2.5 2.5 Variable manufacturing overhead 0.8 0.8 Supervision 1.8 1.8 Dep 1.1 Rent 0.5 Outside Purchase 15.85 Total cost 12.7 11.1 15.85Related Questions
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