2 Troy Engines, Ltd, manufactures a variety of engines for use in heavy equipmen

Question

2 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 $32 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 17,880 Units Per Unit Per Year 14 238,eee Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 8 136,808 3 51,800 $ 34 578,800 51,80 Print 102,80 One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value) Required 1. 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 17,000 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 (disadvantage) of buying 17,000 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 Reqüired 1Required 2 Required 3 Required 4 Assumina the companv has no alternati ive use for the facilities that are now beino used to produce the carburetors. what

Explanation / Answer

Answer:

1

Make

Buy

Direct material (17000*14)

238000

Direct Labor (17000*8)

136000

Variable manu OH (17000*3)

51000

Fixed manu OH
Traceable (51000*2/3)

34000

Purchasing cost

544000

Total Cost

459000

544000

Total cost of Making the parts is $459,000 and Buying the parts is $544,000.

____________________________________________________________________

2

Based on the relevant costs between making and buying the part, it is recommended to

Company should not accept outsideroffer

Company should make a product instead of buying outside

_________________________________________________________________

3

Make

Buy

Cost of purchasing

544000

Cost of Makin

459000

opportunity Cost, segment margin
Forgone on a potential new product

170,000

Total Cost

629,000

544,000

___________________________________________________

4

Based on the relevant costs between making and buying the part-3, it is recommended to

buy a product from outsider supplier

Make

Buy

Direct material (17000*14)

238000

Direct Labor (17000*8)

136000

Variable manu OH (17000*3)

51000

Fixed manu OH
Traceable (51000*2/3)

34000

Purchasing cost

544000

Total Cost

459000

544000

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