Exercise 11-10 Make or Buy Decision [L011-3]Futura Company purchases the 50,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.70per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather thanbuying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because theproduction cost per unit is $11.90 as shown below:Per Unit$ 5.003.20TotalDirect materialsDirect laborSupervisionDepreciationVariable manufacturing overhead1.80 $ 90,0001.000.50$ 50,000Rent0.40$ 20,000Total production cost$11.90If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $90,000) to oversee production. However,the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge aboveis based on space utilized in the plant. The total rent on the plant is $90,000 per period. Depreciation is due to obsolescence ratherthan wear and tear.Required:What is the financial advantage (disadvantage) of making the 50,000 starters instead of buying them from an outside supplier?Financial advantage

Financial advantage (disadvantage) of making the starters = (Purchase price per unit - Relevant…

Futura Company purchases the 50,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.70 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 $11.90 as shown below: Per Unit $ 5.00 3.20 1.80 1.00 0.50 0.40 Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead $ 90,000 $ 50,000 Rent $ 20,000 Total production cost $11.90 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $90,000) to oversee production. However, the company has sufficient idle tools and machinery such 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 $90,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 50,000 starters instead of buying them from an outside supplier? Financial advantage

Futura Company purchases the 50,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.70 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 $11.90 as shown below: Per Unit $ 5.00 3.20 1.80 1.00 0.50 0.40 Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead $ 90,000 $ 50,000 Rent $ 20,000 Total production cost $11.90 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $90,000) to oversee production. However, the company has sufficient idle tools and machinery such 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 $90,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 50,000 starters instead of buying them from an outside supplier? Financial advantage

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 11-10 (Algo) Make or Buy Decision [LO11-3] Futura Company purchases the 68,000 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 production cost per unit is $13.00 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 6.00 2.80 1.70 1.40 0.50 0.60 $13.00 Total $ 115,600 $ 95,200 $ 40,800 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $115,600) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total…
Exercise 11-10 (Static) Make or Buy Decision [LO11-3] Futura Company purchases the 40,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $8.40 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 $9.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 3.10 2.78 1.58 1.00 0.60 0.30 $9.20 $60,000 $ 40,000 $ 12,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $60,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total…
Exercise 11-10 (Static) Make or Buy Decision [LO11-3] Futura Company purchases the 40,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $8.40 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 $9.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 3.10 2.70 1.50 1.00 0.60 0.30 $9.20 Total $ 60,000 $ 40,000 $ 12,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $60,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total…
Exercise 13-10 (Algo) Make or Buy Decision [LO13-3] Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50 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 $12.70 as shown below: Per Unit Total Direct materials $ 6.00 Direct labor 2.20 Supervision 1.80 $ 126,000 Depreciation 1.50 $ 105,000 Variable manufacturing overhead 0.80 Rent 0.40 $ 28,000 Total product cost $ 12.70 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $126,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based…
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Waterways Continuing Problem 20 a, b1-b2 (Part 2) Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.83 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Waterways needs 452,000 of these units each year. If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.56. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,321, and the cost of producing the units would be $9.70 a unit. ] Your answer is incorrect. Try again. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should buy the fitting. Incremental cost / (savings) will…
Waterways Continuing Problem 20 a, b1-b2 (Part 2) Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.83 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Waterways needs 452,000 of these units each year. If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.56. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,321, and the cost of producing the units would be $9.70 a unit. |Your answer is incorrect. Try again. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should buy the fitting. Incremental cost / (savings) will…
54 A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediate product on the market. The final product sells for $100 per unit, whereas the firm believes it can sell the partially processed intermediate product for $75 per unit. The firm sells 1,000 units per quarter and faces a total finished processing cost of $10,000 per quarter after split-off. Should the firm sell the intermediate good or the final good? O The intermediate good, because final good sales decrease profits by $15,000 O The final good, because final good sales increase profits by $25,000 The intermediate good, because final good sales decrease profits by $25,000 O The final good, because final good sales increase profits by $15,000
CH. 4 Question 5 A company is considering outsourcing production of one of its products. The company has received a bid from another company to produce 10,000 units per year for $16 each. The following information: Direct Materials $9 Direct Labor $4 Variable Manfuacturing OH $2 Fixed Manufacturing OH $3 Total Cost per unit $18 1) Compute the difference in cost between making and buying the product 2) Should the company buy the product from the other company or continue to make it themselves?
D Question 7 Tiny Dog Company has 15,000 units of its sparkle dog collar in inventory that had a production cost of $3 per unit. These units cannot be sold through normal channels due to a failure in the collar latching mechanism. These units could be reworked at a total cost of $23,000 and sold for $28,000. Another alternative is to sell the units to a junk dealer for $8,500. The relevant cost for Tiny Dog to consider in making its decision is $45,000 of original product costs. $28,000 for selling the units to the junk dealer. O $68,000 for reworking the units. $23,000 for reworking the units. Question 8 2 pts A cost is sunk if it has already been incurred. is unavoidable. is not an incremental cost. O is irrelevant to the decision at hand.
Exercise 6-11A (Static) Establishing price for an outsourcing decision LO 6-3 Levesque Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here. Cost of materials (20,000 units × $26) Labor (20,000 units × $20) Depreciation on manufacturing equipment* Salary of supervisor of engine production Rental cost of equipment used to make engines Allocated portion of corporate-level facility-sustaining costs Total cost to make 20,000 engines *The equipment has a book value of $90,000 but its market value is zero. Required a. Determine the maximum price per unit that Levesque would be willing to pay for the engines. b. Determine the maximum price per unit that Levesque would be willing to pay for the engines, if production increased to 24,000 units. Note: For all requirements, round intermediate and final answers to 2 decimal places. a. Maximum…
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