Question

2 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: 5 Joints Unit eBook Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 18,000 Units Per Per Year $15 $ 270,000 162,000 4 72,000 6. 108,000 9 162,000 $ 43 $ 774,000 Hint Print References '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 would be 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 the 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 2 Required 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?

Answer 1

9 4 6 9 Units Per Units 18000 Direct Material 15 270000 Direct labor 162000 Variable Manufacturing overheads 72000 Fixed Manufacturing Overheads, Trecable 108000 Fixed Manufacturing overhead , Allocated 162000 43 774000 Fixed Manufacturing Overheads, Trecable Supervisory salaries (Relevant Cost)(6*33%) 33% 2 Depreciation (irrelevan Cost)(6*67%) 67% 4 Purchasing Price of the Unit 33 Solutions Relevant Cost of Making and Buying the Parts 18000 Make Buy Direct Material 15 270000 Direct labor 9 162000 Variable Manufacturing overheads 4 72000 Fixed Manufacturing Overheads, Trecable 2 36000 Fixed Manufacturing overhead , Allocated 9 Purchasing Price 33 594000 Total Cost 540000 594000 1 Financial (Disadvantage ) -54000 Shoud the outside Suppliers offer be accepted NO N

Compute the Relevant cost if the new Prodcuct will privide 180000 Direct Material Direct labor Variable Manufacturing overheads Fixed Manufacturing Overheads, Trecable Segment Margin (Opportunity Cost) Purchasing Price Total Cost Financial Advantage Shoud the outside Suppliers offer be accepted 18000 Make Buy 15 270000 9 162000 4 72000 2 36000 180000 33 594000 720000 594000 3 126000 4 YES