Question

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 cost to produce the starters would be greater than the current $8.90 per unit purchase price: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead $ 4.00 2.00 1.80 $126,000 1.40 $ 98,000 0.40 0.50 35,000 Total product cost 10.10 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 $86,000 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.) elevant 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

Answer 1

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