Question

What is the financial advantage (disadvantage) of making the 73,000 starters instead of buying them from an outside supplier

Answer 1

Answer: Financial advantage of $43,800

Explanation:

The cost to make the starters:

= Direct materials + Direct labor + Variable manufacturing overhead + Supervisor salary

= (6 * 73,000) + (3 * 73,000) + ( 0.6 * 73,000) + (1.90 * 73,000)

= $839,500

Cost to buy them = 73,000 * 12.10

= $883,300

Financial advantage (disadvantage) to making them = 883,300 - 839,500

= $43,800

Rent and depreciation are not relevant to this decision because rent is not directly attributable to this product and depreciation is not based on wear and tear.