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Exercise 11-10 Make or Buy Decision (L011-3) Futura Company purchases the 65.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.50 perunt. Due to a reduction in output, the company now has de 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 $12.50 as shown below: Per Unit Total Direct materials 57.00 Direct labor 2.20 Supervision 1.70 $110,500 Depreciation 1.00 $ 65,00 Variable manufacturing overhead 8.30 $ 19,500 Total production cost 512.50 8.30 Rent Futura decides to make the starters, a supervisor would have to be hired (ot a salary of $110,500) 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 $89.000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage of making the 65,000 starters instead of buying them from an outside supplier? Finance advantage Financial (disadvantage)

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