Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment

Question

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 $42 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor intemally: 15,200 Units Per Year Per Unit S 13 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $197,600 228,000 15,200 91,200 258,400 $790,400 15 6 $ 52 "40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required 1a. Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) Make Buy Total relevant cost (15,200 units)

Explanation / Answer

Financial advantage e/ Disadvantage Make Buy Net Income increase/ Decrease Cost of Buying the units 0 638400 -638400 Cost of Manufacture' Material 197600 0 197600 Labour 228000 0 228000 Variable Mfg Oh 15200 0 15200 Supervisory Salary (6*40%) 36480 0 36480 Net Financial disadvantage 477280 638400 -161120 Total relevant cost 477280 638400 Financial advantage e/ Disadvantage Make Buy Net Income increase/ Decrease Cost of Buying the units 0 638400 -638400 Cost of Manufacture' Material 197600 0 197600 Labour 228000 0 228000 Variable Mfg Oh 15200 0 15200 Supervisory Salary (6*40%) 36480 0 36480 Segment margin of new product 0 -181120 181120 Net Financial advantage 477280 457280 20000 Total relevant cost 477280 457280

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