Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment
ID: 2525486 • Letter: T
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 $36 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
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 (14,600 units)
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 $131,640 per year. 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 (14,600 units)
Should Troy Engines, Ltd., accept the offer to buy the carburetors for $36 per unit?
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 $36 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:
Explanation / Answer
1a) Total relevant cost :
1b) Reject
2a) Total relevant cost :
2b) Accept
Make Buy Direct material 131400 Direct labour 160600 Variable manufacturing overhead 58400 Fixed manufacturing overhead (131400*40%) 52560 Purchase cost (14600*36) 525600 Total relevant cost 402960 525600Related Questions
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