For many years Futura Company has purchased the starters that it installs in its
ID: 2583771 • Letter: F
Question
For many years Futura Company has purchased the starters that it installs in its standard line of farm 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 65.000 starters needed would be greater than the current $13.30 per unit purchase price: Per Unit Total s 7.00 Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent 3.00 1.60 $ 104,000 1.40 $ 91,000 0.80 0.40 S 26,000 Total product cost $ 14.20 would have to be hired to oversee production of the starters. However, the company has A supervisor sufficient idle tools and above is based on space utilized in the plant. The total rent on the plant is $83,000 per period. Depreciation is due to obsolescence rather than wear and tear machinery so that no new equipment would have to be purchased. The rent charge Required: 1. Determine the total relevant cost per unit if starters are made inside the company. (Round your answer to 2 decimal places.) evant cost per unit 2. Determine the total relevant cost per unit if starters are purchased from an outside supplier. (Round your answer to 2 decimal places.) levant cost per unit What is the increase or decrease in profits as a result of purchasing the starters from an outside supplier rather than making them inside the company? (Do not round intermediate calculations. Round your answor to the nearest dollar amount.) 3.Explanation / Answer
Answer:-
1 Answer:- The total relevant cost per unit if starters are made inside the company :
Relevant cost per unit - $12.40
2Answer:- The total relevant cost per unit if starters are purchased from outside supplier
Relevant cost per unit :- $13.30 per unit
3 Answer:- The company should make the starters rather than continuing to buy from the outside supplier making the starters will result in $0.90 per starter cost saving or a total saving of 65000 starters
= 0.9 per starter × 65000 starters = 58500
Therefore the profit would $0.90 by 58500 per period.
Particulars cost per unit ($) Making cost per unit ($) Buying Cost Per Unit ($) Direct Materials 7.0p 7.00 Direct Labour 3.00 3.00 Variable Manufacturing overhead 0.80 0.80 Supervision 1.60 1.60 Depreciation 1.40 Rent 0.40 Outside purpose price 13.30 Total Cost 14.20 12.40 13.30Related Questions
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