For many years Futura Company has purchased the starters that it instals n its s

Question

For many years Futura Company has purchased the starters that it instals n its standard line of farm tractors. Due to a reduction in output, the company has idle capacty that could be used to produce the tarters. The chief engineer has recommended against this move, however, pointing out that the per und produce the 55.000 starters needed would be greater than te ameen S10 1peont purchase prce Direct materials Direct labor Supervision 5 400 3 20 160 s88000 1.10 60,500 0.40 060 33,000 Variable manufacturing overhead Rent Total product cost 3 10.90 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 equpment would have to be purchased. The rent charge pove is based on space uthized in the plant The total rent on the plant 588,000 per period Depreciation is due to obsolescence rather than wear and tear Required: 1 Determing the total reevant cost per unit if starters are made icide the company (Round your answer to 2 decimal places.) 2 Determine the total relerant cost per unt if starters are purchased from an outside supplier IRound your answer to 2 decimal places.)

Explanation / Answer

1 Relevant cost per unit = 4+3.2+1.6+0.4= 9.2 2 Relevant cost per unit = $10.1 3 Change in profits = 55000*(10.1-9.2)= 49500 Profit would decrease by $49500

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