Question
Please finish the Required 1 in pic 1. And Required 3 in the second pic. Plz circle the answer.
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 Engines, Ltd., for a cost of $40 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating own cost of producing the carburetor internally: 18,000 Units Per Per Unit Year Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 18 $324,000 9 162,000 36,000 9 162,000 12 216,000 $50 $900,000 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 woul the financial advantage (disadvantage) of buying 18,000 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 $180,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 18,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs below Required 1 Required 2Required 3 Required 4 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 18,000 carburetors from the outside supplier? Financial (disadvantage)
Explanation / Answer
1 calculation of the cost of manufacturing particulars cost per unit total cost of manufacturing ( 18000 units * cost per unit ) 1 direct materials 18 324000 2 direct labour 9 162000 3 variable manufacturing overheads 2 36000 4 supervision 3 54000 5 total cost of manufacturing ( 1 + 2 + 3 + 4 ) 32 576000 6 cost of procuring from outside 40 18000 * 40 720000 7 financial disadvantage from buying outside supplier cost of procuring from outside - total cost of manufacturing 720000 - 576000 144000 financial disadvantage 144000 the supervison per unit is 1/3 of total 9 , ( 9 * 1 / 3 ) , 3 2 the offer should not be accepted as the cost of procuring from outside supplier is a disadvantage to the company 3 relevant cost for the decision 1 total cost of manufacturing 576000 2 opportunity cost of margin 180000 3 total relevant cost ( 1 + 2 ) 756000 4 cost of procuring from outside 720000 5 financial advantage from buying outside supplier total relevant cost - cost of procuring from outside 756000-720000 36000 4 the offer should be accepted as the cost of procuring from outside supplier is a advantage to the company