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 $21 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 15,600 Per Units Unit Per Year $ 5 $ 78,000 7 109,200 4 62.400 6 93,600 9 140,400 Total cost 31 $483,600 *40% supervisory salaries, 60% 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. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) Make Buy Total relevant cost (15,600 units) 1b. Should the outside supplier's offer be accepted? Accept O Reject

Explanation / Answer

1 Per unit Total Make Buy Make Buy Direct materials 5 78000 Direct labor 7 109200 Variable manufacturing overhead 4 62400 Fixed manufacturing overhead traceable 2.4 37440 Purchase cost 21 327600 Total 287040 327600 Make Buy Total relevant cost 287040 327600 1b Reject 2a Make Buy Total cost 287040 327600 Opportunity cost 55560 Total relevant cost 342600 327600 2b Accept

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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