> ID ezto.mheducation com Solwed: Accept or Reject a Assignment 5 Check Your Wor

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> ID ezto.mheducation com Solwed: Accept or Reject a Assignment 5 Check Your Work Troy Eng y Engines, Troy Eng Problem 9-4 Determining Whether to Make or Buy (L01 - CC4) Troy Engines Ltd. manufactures a varlety 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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $38.5 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: 16,500 Per Units Unit per Year Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated S 14 $231,000 11 181,500 4 66,000 7.5' 123,750 10 165,000 Total cost $46.5 $767,250 One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required 1-a. Compute the total differential cost per unit for producing and buying the product (Round your answers to 1 decimal places. Make Bu Total differential cost (per unit)$ 31.5 S 38.5 1-b. Should the outside supplier's offer be accepted? Yes O No 2-a. 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 $190,000 per year. Compute the total differential cost in producing and buying the product when the segment margin is foregone on a potential new product ine. Make Buy $ 635,250 Total differential cost

Explanation / Answer

1 Per unit Make Buy Direct materials 14 Direct labor 11 Variable manufacturing overhead 4 Fixed manufacturing overhead traceable 2.5 Purchase cost 38.5 Total differential cost 31.5 38.5 1b No 2a Make Buy Total cost 519750 635250 Opportunity cost 190000 Total differential cost 709750 635250

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