1: Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipm
ID: 2536191 • Letter: 1
Question
1:
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 $45 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally 15.700 Per Units Unit Per Year S 13 $204,100 15 235,500 4 62,800 6 94,200 17 266,900 Direct materials Direct labor ariable manufacturing overhead overhead, traceable Fixed manufacturing overhead, allocated Total cost S 55 $863,500 40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: 1a. Assuming that the company has no altemative 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 (15,700 units) 1b. Should the outside supplier's offer be accepted? O Accept O RejectExplanation / Answer
Answer:
1
Make
Buy
Total Relevant cost
540080
706500
Working for the answer:
Total Relevant cost
Per unit
15700 units
Make
Buy
Make
Buy
Cost of purchasing
45
0
706500
Direct material
13
204100
Direct labor
15
235500
Variable Manufacturing Overhead
4
62800
Fixed Manufacturing Overhead tracable
2.4
37680
Fixed Manufacturing Overhead Common
0
Total
34.4
45
540080
706500
Diffrance in favor of continuing an operation
10.6
166420
(45-34.4)
(706500-540080)
1-a
Company should reject the offer
_______________________________________________
2
Make
Buy
Cost of buying
706500
Cost of making
540080
opportunity cost-Segment margin forgone
184420
Total
724500
706500
Diffrance in favor of buying
(724500-706500)
18000
2-b
Company should Accept the offer
Make
Buy
Total Relevant cost
540080
706500
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.