Chec Troy Engines, Ltd. manufactures a variety of engines for use in heavy equip
ID: 2582341 • Letter: C
Question
Chec 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 $33 per unit. To evaluate this offer, Troy Engines, Ltd, has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 18,000 Units Per Year Direct materials Direct labor Variable manufacturing overhead $ 15 $ 270,000 162,000 72,000 Fixed manufacturing overhead, traceable Eixed manufacturing overhead, allocated Total cost 6 108, 000 162,000 $ 43 $ 774,000 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 the financial adventage (disedventage) of buying 18,000 carburetors from the outside supplier? 2 Should the outside suppliers offer be accepted? thet if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to lau segment mergin of the new product would be $180,000 per year. Give n this new assumption, what would be financial advantage sedvantage) of buying 18,000 carburetors from the outside supplier? 4 Given the new essumption in requirement 3, should the outside supplier's offer be accepted?Explanation / Answer
1.
Relavent costs per unit = Direct materials + Direct albour + Variable manufacturing overhead + Supervisory salaries
= 15 + 9 + 4 + 6*(1/3)
= 30
Financial disadvantage = 18,000 * (33-30)
= 54,000
2.
The outside supplier's offer should not be accepted.
NO
3.
Relavent costs per unit = Direct materials + Direct albour + Variable manufacturing overhead + Supervisory salaries + Segment margin lost per unit
= 15 + 9 + 4 + 6*(1/3) + (180,000/18,000)
= 40
Financial advantage = 18,000 (40-33)
= 126,000
4.
The outside supplier's offer should be accepted.
YES