CO ezto mheducation.com/hm.tpx 5. Troy Engines Ltd manufactures a variety of eng
ID: 2574491 • Letter: C
Question
CO ezto mheducation.com/hm.tpx 5. Troy Engines Ltd manufactures a variety of engines for use in heavy equipment The company has aways produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to produce and sell one trpe of carburetor to Troy Engines Ltd. for a cost of $51.0 per unit To evaluate this offer, Troy Engines Ltd, has gathered the following information relating to its own cost of producing the carburetor internally 21,000 Units Unit Direct materials Direct labour Variable manufacturing overhead Fised manufacturing overhead, traceable 120" 252,000 Fleed manufacturing overhead, alocated 13273,000 3 16 336,000 14 204,000 7 147,000 Total cost 5620 $1,302,000 One-third supervisory salaries, two-hirds depreciation of special equipment (no resale value) Require 1-a. Compute the total differential cost per unit for producing and buying tfe product (Round your answers to 1 decimal places.) Total diferential cost (per unit 1 b. Should the outside supplier's ofer be accepted? Yes No 2 a. Suppose that if the carburetors were purchased, Troy Engines Ltd could use the freed capacity launch a new product The segment margin of the new product would be $280,000 per year Compute the total differer al cost in producing and buring the product when the segment margin is foregone on a potenial new product line Total difereenial cost 2 Shoud Troy Engines ud. accept me omer to buy the carburetors tor 1 0 per uni? oyes NoExplanation / Answer
1-a.
* Out of the traceable fixed cost , two -thirds is the depreciation on a special machine. This has been added to the cost for "Buy" option, since this cost is for a special machine for manufacture of the product, and will not have any other use.
1-b.
As the differential cost for buy option is more than the cost for "Make" option , the company should make the product.
2.
Differential cost for "buy" option per unit =$6
Total additional cost for 21,000 carbutters =$126,000
Segmented margin of the new product =$280,000
Differential cost of the new product =$154,000
2-b.
Since the differential cost is +$154,000 for the new product, the company should "Buy" the product and manufacture the new product.
Item Make Buy Difference Direct material 16 16 Direct labor 14 14 Variable manufacturing overhead 7 7 Fixed manufacturing overhead, traceable * 8 8 Total cost 45 45 Cost of buy, 51 -51 Differential cost -6