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 $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:

*40% supervisory salaries; 60% depreciation of special equipment (no resale value)

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.)

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 $140,680 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

Per Unit 15,200 Units
Per Year   Direct materials $ 9    $ 136,800     Direct labor 11    167,200     Variable manufacturing overhead 1    15,200   Fixed manufacturing overhead, traceable 9*   136,800     Fixed manufacturing overhead, allocated 13    197,600   Total cost $ 43    $ 653,600

Explanation / Answer

Statement showing computations and analysis Particulars Make Buy Direct Materials @9        136,800.00 Direct Labour@11        167,200.00 Variable Manu O/H @1          15,200.00 Fixed Manu O/h Traceable 136,800*40%          54,720.00 Purchase Cost@33     501,600.00 Total Relevant Cost        373,920.00     501,600.00 Statement showing computations and analysis Particulars Make Buy Direct Materials @9        136,800.00 Direct Labour@11        167,200.00 Variable Manu O/H @1          15,200.00 Fixed Manu O/h Traceable 136,800*40%          54,720.00 Purchase Cost@33     501,600.00 Oppurtunity Cost (140,680.00) Total Relevant Cost        373,920.00     360,920.00

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