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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 $8.20 per unit purchase
price:

 

 

Per Unit

Total

  Direct materials

$2.94    

 

  Direct labor

2.54    

 

  Supervision

1.38    

$56,580   

  Depreciation

0.99    

$40,590   

  Variable manufacturing overhead

0.48    

 

  Rent

0.18    

$7,380   

  Total production cost

$8.51    

 

 

A supervisor would have to be hired to oversee production of the
starters. However, the company has sufficient idle tools and
machinery 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 $71,000 per period. Depreciation is due
to obsolescence rather than wear and tear.

 

Required:

 

How much would profits per unit increase or decrease as a result
of making the starters? (Input the amount as positive
value. Round your answer to 2 decimal places. Omit the “$” sign in
your response.)

 

  Profits would by

 

  per unit

 

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