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2. value: 1.25 points Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has alway2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $47 per unit? Accept Reject

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Answer #1

Solution 1a:

Particulars Making Carburetor Buying Carburetor
Costs:
Purchase Price (15100*$37) $0 $7,09,700
Direct material $1,96,300 $0
Direct Labor $2,26,500 $0
Variable overhead $45,300 $0
Avoidable Fixed Overhead ($135,900*40%) $54,360 $0
Total Relevant Cost $5,22,460 $7,09,700

Solution 1b:

No, Outside supplier's offer should not be accepted.

Solution 2a:

Particulars Making Carburetor Buying Carburetor
Costs:
Purchase Price (15100*$37) $0 $7,09,700
Direct material $1,96,300 $0
Direct Labor $2,26,500 $0
Variable overhead $45,300 $0
Avoidable Fixed Overhead ($135,900*40%) $54,360 $0
Loss of opportunity of new product margin $2,04,240 $0
Total Cost $7,26,700 $7,09,700

Solution 2b:

Yes, Outside supplier's offer should be accepted.

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