EXERCISE 7-10 Make or Buy a Component [LO 7-3] 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, point- ing out that the cost to produce the starters would be greater than the current $8.40 per unit purchase price: Total Direct materials.... Direct labor... Supervision Depreciation. Variable manufacturing overhead. Rent...... Total production cost... Per Unit $3.10 2.70 1.50 1.00 0.60 0.30 $9.20 $60,000 $40,000 $12,000 A supervisor would have to be hired to oversee production of the starters. However, the com- pany has sufficient idle tools and machinery 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 $80,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: Prepare computations showing how much profits will increase or decrease as a result of making the starters