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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $59.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally:

Compute the total differential cost per unit for producing and buying the product. (Round your answers to 1 decimal places.)

Total differential cost (per unit) for make & buy ?

1b) Should the outside supplier’s offer be accepted? YES/NO?

2a) 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 $340,000 per year. Compute the total differential cost in producing and buying the product when the segment margin is foregone on a potential new product line.

total differential cost for make & buy?

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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $59.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally:

Explanation / Answer

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

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