Question

Troy Engines ud manufactures a vanety 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 oftet, Troy Engines, ud, has gathered the following information relating to its own cost of producing the carburetor internally 10. Direct Tabor Varile facturing overhead Fixed s tarturing vores traceable ved manufacturing overhead located "One-third supervisory states, 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 16.000 carburetors from the outside suppler? 2. Should the outside wuppliers offer be accepted? 3. Suppose that the carburetors were purchased, Troy Engines. Lid could use the weed capacity bunch new productThe segment margin of the new product would be $100.000 per year. Given this new assumption, what would be the financial advantage disadvantage of buying 15.000 carburetors from the outside suppiler? 4. Given the new assumption in requirement 3. Should the outside Suppliers offer be accepted Complete this question by entering your answers in the tabs below Required 1 Required 2 gured Red 4 Assuming the company has no alternative use for the facilities that are now being used to produce the carbuntars, what would be the financial an d advantage buying 15000 carburetors from the outste sul Required 2 >

Answer 1

Required 1 :
	Make	Buy
Direct materials	256000
Direct labor	192000
Variable manufacturing overhead	48000
Buying cost ( 16000 * 35 )		560000
Fixed manufacturing overhead, traceable ( Supervisor's salary = 48000 * 1/3 )	16000
Total relevant cost	512000	560000

Note : Allocated fixed manufacturing overhead and depreciation of special equipment will appear in both the situations and will not affect the decision marking and hence the same is ignored in the calculation.

Total relevant cost of making	512000
Less : Total relevant cost of buying	560000
Financial advantage (Disadvantage)	(48000)

Required 2 :

Answer : No

Reason : As the outside supplier's offer is resulting in a financial disadvantage

Required 3 :
	Make	Buy
Direct materials	256000
Direct labor	192000
Variable manufacturing overhead	48000
Buying cost ( 16000 * 35 )		560000
Fixed manufacturing overhead, traceable ( Supervisor's salary = 48000 * 1/3 )	16000
Less: Segment margin of the new product		160000
Total relevant cost	512000	400000

Total relevant cost of making	512000
Less : Total relevant cost of buying	400000
Financial advantage (Disadvantage)	112000

Required 4 :

Answer : Yes

Reason : As the outside supplier's offer is resulting in a financial advantage