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Futura Company purchases the 50,000 starters that It Installs In Its standard line of farm...

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Accounting

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Futura Company purchases the 50,000 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 productlon cost per unit is $11.70 as shown below: Per Unit Total Direct materials 5.ee Direct labor 3.ee Supervision Depreciation Variable manufacturing overhead 80,eee 1.60 $ 50,eee 1.ee .80 15,0ee Rent e.30 Total production cost 11.70 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $80,000) to oversee production. However, the company has sufficlent idle tools and machinery such that no new equlpment would have to be purchased. The rent charge above Is based on space utilized In the plant. The total rent on the plant is $88,00o0 per perlod. Depreclation is due to obsolescence rather than wear and tear Required: What Is the financlal advantage (disadvantage) of making the 50,000 starters Instead of buying them from an outside supplier

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