Check my work 2 Troy Engines, Ltd., manufactures a variety of engines for use in
ID: 2536448 • Letter: C
Question
Check my work 2 Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 10 points 22,000 Units Per Year Per Unit eBook Hint Print References Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 15 $ 330,000 8 176,000 66,000 3 66,000 6132,000 S 35 $ 770,000 One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value) Required 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $220,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?Explanation / Answer
1 Per unit Total Make Buy Make Buy Direct materials 15 330000 Direct labor 8 176000 Variable manufacturing overhead 3 66000 Fixed manufacturing overhead traceable 1 22000 Purchase cost 35 770000 Total 594000 770000 Financial (disadvantage) ($176000) 2 NO, Reject 3 Make Buy Total cost 594000 770000 Opportunity cost 220000 Total relevant cost 814000 770000 Financial advantage $44000 4 Yes, accept