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40% newconnect.m ercises Saved Help Save&Exit; Submit Check my work 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 Unita Per Per Unit Year Direct materials Direct Labor Variable manufacturing overhead Pixed manafactaring overhead, traceable rixed manafacturing overhead, allocated Total cost 13 208,000 13 208,000 32,000 9 144,000 12 192,000 49 784,000 One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: t. Assuming the company has no altermative use or the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 16,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd, could use the freed capacity to launch a new product. The segment margin of the new product would be $160,000 per year, Given this new assumption, what would be financial advantage (disadvantage) of buying 16,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Required 4 MacBook Air

Explanation / Answer

3)Cost of purchase : 35* 16000 = 560000

Net cost of purchase = 560000-160000=400000

Relevant cost of making one unit : 13+13+2+[9*1/3]

                 13+13+2+3

              = 31

**

fixed traceable cost -supervisory cost is relevant as it will be avoided if product is purchased .

Depreciation and allocated fixed cost will be incurred whether purchased or not thus irrelevant.

cost of making = 31*16000 = 496000

Financial advantage from purchase = 496000-400000 = 96000

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