Chapter 12 Question 2

Chapter12 Homework problems 8 59M Help Saves Exit Submit 2 Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.80 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However. the company's chief engineer is opposed to making the starters because the 5 production cost per unit is $12.40 as shown below: points Per Unit Total Direct materials $ 5 .00 eEook Direct Labor 3 .00 Supervision 1.80 $133,200 Prim Depreciation 1 .40 $103, 600 Variable manufacturing overhead 0 . 80 garment\" Rent 0.40 $ 29,600 Total product cost $ 12 .40 If Futura decides to make the starters. a supervisor would have to be hired (at a salary of $133,200) to oversee production. However, the company has sufficient idle tools and machinery such 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 $85900 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the nancial advantage {disadvantage} of making the ?4.000 starters instead of buying them from an outside supplier? :i:l