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 $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 15,000 Per Units Direct materials Direct labor Variable manufacturing overhea Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Unit Per Year $ 14 $210,000 10 150,000 3 45,000 6 90,000 9 135,000 Total cost $ 42 $630,000 One-third supervisory salaries; two-thirds 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 Make Buy Total relevant cost (15,000 units) 1b. Should the outside supplier's offer be accepted? O Accept Reject 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 $150,000 per year. Compute the total cost of making and buying the parts

Explanation / Answer

1a)
Totla cost=14+10+3+(1/3*6)=29
Buy=$35
Make=15000*29=$435,000
Buy=15000*35=$525,000
Only supervisor salary is included

1b)They should reject the offer to buy

2a) Relevant cost=435,000+150,000=$585,000

buying remains same.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.