Help Save & Exit Submit 10 Check my work Troy Engines, Ltd., manufactures a vari

Question

Help Save & Exit Submit 10 Check my work 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 $30 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 19,000 Units Per Year Per Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $ 12 228,000 10 190,000 3 57,000 3* 57,000 6 114,000 $ 34 646,000 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 would be the financial advantage (disadvantage) of buying 19,000 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 $190,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? ces 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 K Prev3 of 4 Next >

Explanation / Answer

(1) Purchase Price = $30 per unit

      Manufacturing cost (Relevant) :-

Direct Material

12

Direct Labour

10

Variable Mfr O/H

3

Fixed Mfr O/H (Traceable) (3 – 2*)

1

26

*Depreciation = 3 * 2/3 = 2

Financial Advantage(Disadvantage) of buying 19000 carburators = 19000 * (30 – 26) = ($76000)

(2) No, the offer should not be accepted

(3) Financial disadvantage of buying = (76000)

      Segment margin of free capacity = 190000

Revised advantage (Disadvantage) = $114000 advantage

(4) Yes the order should be accepted

Direct Material

12

Direct Labour

10

Variable Mfr O/H

3

Fixed Mfr O/H (Traceable) (3 – 2*)

1

26

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