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

Question

Troy

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 $23 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). Required: 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.) Should the outside supplier's offer be accepted? Reject Accept 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 $77,360 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) 2b. Should Troy Engines. Ltd.. accept the offer to buy the carburetors for $23 per unit?

Explanation / Answer

Cost of Making 14400 Carburetor

Produce Carburetor

Buy Carburetor from Out Side

Direct Materials

$72000

Direct Labor

$100800

Variable Overhead

$43200

Fixed Overhead

Traceable(Super Visors salary)

$51840

Allocated

-

Purchase cost of Caburetor

$331200

Relevant Cost

$267840

$331200

Per Unit Cost

$18.6

$23

1.b Rejected, As the Relevant cost price is less than the purchase price

2.a Relevant Cost of Making 14400 Carburetor

Produce Carburetor

Buy Carburetor from Out Side

Direct Materials

$72000

Direct Labor

$100800

Variable Overhead

$43200

Fixed Overhead

Traceable(Super Visors salary)

$51840

Allocated

-

Segment Margin of the New Product

-$77360

Purchase cost of Caburetor

$331200

Relevant Cost

$267840

$253840

Per Unit Cost

$18.6

$17.63

2b. Accept, As the company has a benefit in Unit price $.97 in accepting alternative of buy carburetor fro out side

Produce Carburetor

Buy Carburetor from Out Side

Direct Materials

$72000

Direct Labor

$100800

Variable Overhead

$43200

Fixed Overhead

Traceable(Super Visors salary)

$51840

Allocated

-

Purchase cost of Caburetor

$331200

Relevant Cost

$267840

$331200

Per Unit Cost

$18.6

$23

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