Financial advantage (disadvantage) of making the 40,000 starters instead of buying them from an outside supplier is: $89,700.
<h3>Financial advantage (disadvantage)</h3>
First step is to calculate the relevant cost of making starters
Relevant cost= Direct materials+ Direct labor+ Variable manufacturing overhead+ Supervision
Relevant cost=($4×69,000)+ ($3.20×69,000) +($0.60×69,000) + $117,300
Relevant cost=$276,000+$220,800+$41,400+$117,300
Relevant cost=$655,500
Second step is to calculate the relevant cost of buying starters
Relevant cost=$10.80 × 69,000
Relevant cost=$745,200
Third step is to calculate the financial advantage
Financial advantage=$745,200-$655,500
Financial advantage=$89,700
Therefore the financial advantage is $89,700.
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