Garrison Managerial Accounting 1se: Ace 202 - Spring 2016-31846 Mw 9-1050 instru
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Garrison Managerial Accounting 1se: Ace 202 - Spring 2016-31846 Mw 9-1050 instructions i help Chapter 12 Homework GRADED 2. 1.66 points Troy Engines. Troy Engines, L always produced all of the necessary parts for its engines, including all of the carburetors. An outside Ltd, manufactures a variety of engines for use in heavy equipment. The company has has offered to sell one type of carburetor to Troy Engines, Ltd, for a oost of $34 per unit. To supplier has offered to evaluate this offer, Troy Engines, Ltd., has gathered the following information reiating to ns own cost of producing the carburetor intemally. 15,700 Per Units Direct matenials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Unit Per Year $ 9 $141,300 11 172,700 2 31,400 141,300 13 204,100 Total cost $ 44 $690,800 "40% supervisory salaries; 60% depreciation of specal equipment (no resale value) Required: 1a. Assuming the carburetors, compute the total cost of making and buying the parts (Round your Fixed manufacturing overhead per unit rate to 2 decimals) Make Buy Total relevant cost (15,700 units) 1b Should the outside suppliers offer be accepted? Accept O Reject that if the carburetors were purchased. Troy Engines, Ltdcould use the freed capacity to a new product. The segment margin of the new product would be $141,880 per year. Compute 2a Suppose launch the total cost of making and buying the part rate to 2 decimals.) s. (Round your Fixed manufacturing overhead per unit Make Buy Total relevant cost (15,700 units) 2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $34 per unit? Reject O AcceptExplanation / Answer
1a)
40% of the traceable fixed manufacturing overhead is supervisor’s salary and 60% is the depreciation for special equipment used to produce the carburettor. The facility has no alternative use. The depreciation of 60% * $9 = $5.40 per unit is irrelevant as the depreciation of the equipment will have to incur whether the company uses the equipment to produce the carburettor or not. However, supervisor’s salary of 40% * $9 = $3.60 is an avoidable cost and therefore is a relevant cost in making the decision.
The allocated fixed cost is always an irrelevant cost as it is not an avoidable fixed cost.
1b)
As the relevant cost of manking the product is less than that of buying the product, the offer of the outside supplier should not be accepted.
2a)
2b)
The relevant cost of making the product is more than that of buying the same. Therfore, the offer of the outside supplier should be accepted.
Relevant cost of making ($) Direct material 9.00 Direct labour 11.00 Variable manufacturing overhead 2.00 Traceable fixed cost (supervisor's salary) 3.60 Total Relevant cost per unit 25.60 Total relevant cost for 15700 units (15700 x $25.60) 401920 Toatl relevant cost of buying (15700 x $34 per unit) 533800Related Questions
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