produced all of the necessary parts for its engines, including all of the a vari
ID: 2557563 • Letter: P
Question
produced all of the necessary parts for its engines, including all of the a variety of engines for use in heavy equipment. The,company has always evaluate this offer, Troy Engines, Ltd., has gathered the carburetiors. following intormation relating to its own cost of producing the carburetor internaly An outside supplier has offered to sell one type of carburetor to Troy Engines,Ltd., for a cost of $35 per unit. To 15,000 Units Per Year Drect malerials Direct labor Varable manufacturing overhead Fxed manufacturing everhead fraceeble Fixed manufacturing overhead, alocaed Total cost $14S 210000 50,000 45.000 90,000 10 6 135 000 42630,000 One-third supervisory salaries; two-thirds depreclation of specal equipment (no reale Required: 1a. Assuming that the company has ns altemarive use for the tacilities th are now being used to produce the carturetors,.compute the total cost of making and buying the parts a Make Total relevant co(15 000 unts)Explanation / Answer
1a.
Depreciation on special equipment is not relavent because the equipment has no resale value. It is not an avoidable cost.
Fixed manufacturing overhead allocated is not a relavent cost because it is not an avoidable cost
Only the avoidable costs are relavent in decision making
Relavent cost per unit= Direct materials + Direct labour + Variable manufacturing overhead + Supervisory salaries
= 14 + 10 + 3 + 2
= 29
1b.
Reject
2a.
Cost to make = Relavent cots + Contribution margin lost
= (15,000*29) + 150,000
= 435,000 + 150,000
= 585,000
2b.
Accept
Make Buy Total relavent cost (15,000 units) 435,000 (29*15,000) 525,000 (35*15,000)Related Questions
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