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 $10.80 per unit purchase price: Per Unit Total Direct materials $ 6.00 Direct labor 2.20 Supervision 1.50 $ 97,500 Depreciation 1.10 $ 71,500 Variable manufacturing overhead 0.80 Rent 0.30 $ 19,500 Total product cost $ 11.90 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 $83,000 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.

Answer 1

The real question is why do Flying Fish not choose to fly across the world into a nicer place? Like, if they can fly why don’t they go on holiday

Answer 2

Answer:

$10.50

Explanation:

The computation of the relevant cost per unit is shown below:

= Direct material per unit + Direct labor per unit + supervision per unit + variable manufacturing overhead per unit

= $6 + $2.20 + $1.50 + $0.80

= $10.50

The relevant cost per unit only considered the direct material per unit, direct labor per unit, supervision per unit, and the variable manufacturing overhead per unit only

All other cost that is mentioned is not relevant. Hence, ignored it