nnect Solved: Make or Buy a Com + v A https/newconnect mheducation.com/flow/conn

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nnect Solved: Make or Buy a Com + v A https/newconnect mheducation.com/flow/connect html hapter 12 Graded Assignment Troy Engines, necessary parts for its engines, including all of the car Engines, Ltd. for a cost of S34 To own cost of producing the carburetor internally Ltd, manufactures a variety of engines for use in heavy equsipment The company has always produced all of the buretors An outside supplier has offered to sell one type of carburetor to Troy per unit. To evaluate this offer, Troy Engines, Ltd, has gathered the following information relating to its 19,000 Units Per Direct materials Direct 1labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 16 304,080 196,880 38,000 10 9* 171,808 228,000 49% 931,000 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value t Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? 2 Should the outside supplier's offer be accepted? 3 Suppose that if the carburetors were purchased, Troy Engines, Lid, could use the freed capacity to launch a new product. The segment margin of the new product would be $190,000 per year. Given this new assumption, what would be financial advantage disadvantage) of buying 19,000 carburetors from the outside supplier? 4 Given the new assumption in requirement 3, should the outside suppler's offer be accepted? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 has no alternative use for the facilities that are now being used to produce the carburetors, what Assuming the company would be the financial advantage (disadvantage) of buving 19,000 carburetors from the outside supplier? Required 2> Prev 1 of1 Ned re to search

Explanation / Answer

Req 1: Financial advantage/(Disadvantage) of buying: Make Buy Net Increase / Decrease in net income Variable cost of manufacture Material 304000 0 304000 Labour 190000 0 190000 Variable overheads 38000 0 38000 Fixed Manufacturing OH-Trceable 171000 114000 57000 Cost of buying 0 646,000 -646000 Net increase/(Decrease) inincome 703000 760000 -57000 Note; Supervisor's salary is taken as relevant. And Fixed expense allocated is a cost which will have to be incurred irrespective of decision. Req 2: Hence the parts must be manufactured in house Req 3: When idle capacity is used in some other project: Net decrease in income -57000 Add: Net income from other line of product 190,000 Net Increase in income 133,000 Req 4: Now, the Parts muts be asembled from outside.

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