FINANCIAL ADVANTAGE = $ 68,400 PER PERIOD
EXPLANATION IS GIVEN BELOW :
Cost per unit | Differential cost | ||
make | buy | ||
Direct materials | $ 5.00 | $ 5.00 | |
Direct labor | $ 2.80 | $ 2.80 | |
Variable manufacturing overhead | $ 0.60 | $ 0.60 | |
Supervision | $ 1.60 | $ 1.60 | |
Depreciation ( note 1) | $ 1.20 | ||
Rent ( note 2 ) | $ 0.4 | ||
Outside purchase price | $ 10.90 | ||
Total | $ 11.60 | $ 10.00 | $ 10.90 |
the company should making the starters instead of continuing to buying from the outside supplier. | |||
here per unit financial advantage = $ 0.90 per unit { $ 10.90 - $ 10.00 } | |||
total financial advantage = $ 0.90 * 76,000 starters = $ 68,400 | |||
so, total financial advantage of $ 68,400 per period. | |||
note : | |||
1) depreciation is a sunk cost .so it is not include | |||
2) Rent is a allocated cost . So it is not include |
Futura Company purchases the 76.000 starters that it installs in its standard line of farm tractors...
Futura Company purchases the 76.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.90 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 production cost per unit is $11.60 as shown below. Total Per Unit $...
Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $9.60 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 production cost per unit is $10.90 as shown below: Per Unit Total Direct...
Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.90 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 production cost per unit is $10.80 as shown below: Direct materials Direct labor...
Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.90 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 production cost per unit is $10.80 as shown below: Direct materials Direct labor...
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Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.80 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 production cost per unit is $13.50 as shown below: Per Unit Total Direct...
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