Question

8. value: 1.25 points 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 60,000 starters needed would be greater than the current $9.70 per unit purchase price: Per Total Direct materials Direct labor Supervision Unit $4.00 2.80 1.60 $ 96,000 $72,000 1.20 Depreciation Variable manufacturing overhead Rent 0.80 0.40 $24,000 Total product cost $ 10.80 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 $84,000 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 unit 2. Determine the total relevant cost per unit if starters are purchased from an outside supplier. (Round your answer to 2 decimal places.) Relevant cost per unit 3. 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 answer to the nearest dollar amount.) Profit would per period

Answer 1

Solution : Given = Fron table sgiven data D) In this : 15 we need to determine the total relevant cost per unit of starters are made the on side company particulars Relevant cost- per unit $ 4.00 $ 2.80 $1.60 pixect Mofeziols Dimect Labo.1 supervision Variable Manufacturing ovelhead Tokat jelevant cost per - init! $ 0.80 $ 902.0 - Hence, it is the total relevant cost per the unft is $ 9.20.. Relevant Cosl- po unik $ 9. 20 2 we need to determine the total relevant cost per unit. NR Starters . arie purch ased boorm an outside supplier.

particolars 7 Relevant Cost per unit current purchase $9.70 $9.70 Total gelevant cost pelunils Total elevant cost pe unit is $ 9.70 5) Relevant cost per unit $ 9.70 3 In this calculate the increase or decrease In profits as a result of purchasing the Starters from an out side supplier rather than Making them inside thee Company. :-) IES to incy ease y decrease in propi particulars . Relevant cast per unit TCVN relevant cost been making the Starters £60,000x$9.20) $ 552,000 TOfeel lefeveint (9752 609 pusch- case from an outside Suppiez ( 60.000 $4.70 $ 582,000 profit would d'eexta se by - $ 30,000

-> Profit would decrease by $ 30,000