Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment
ID: 2560544 • 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 $34 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 14,700 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, Per Units Unit Per Year $9 $132,300 11 161,700 2 29,400 9* 132,300 traceable Fixed manufacturing overhead, 13 191,100 allocated Total cost $646,800 "40% supervisory salaries: 60% depreciation of special equipment (no resale value) Required 1a 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 Bu Total relevant cost 14,700 units 1b.Should the outside supplier's offer be accepted? Reject Accept 2a.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 $141,480 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) Make Bu Total relevant cost (14,700 units 2b.Should Troy Engines, Ltd., accept the offer to buy the carburetors for $34 per unit? Reject AcceptExplanation / Answer
Answer:
1
Make
Buy
Cost of purchasing
34
Direct materials
9
Direct labor
11
Variable manufacturing overhead
2
Fixed manufacturing overhead, traceable (9*40%)
3.6
Fixed manufacturing overhead, allocated
0
Total
25.6
34
Total relevant cost
=(14700 unit x cost )
376320
499800
Make
Buy
Total relevant cost
14700 unit
376320
499800
__________________________________________
2
Outsider supplier order should be accepted:
Answer: NO
Outsider supplier order should be Rejected
_________________________________________
3
Make
Buy
Cost of making
376320
Cost of Buying
499800
opportunity cost-New product line segment
margin
141,480
Total relevant cost
14700 unit
517,800
499,800
Make
Buy
Total relevant cost
14700 unit
517,800
499,800
_________________________________________________________
Outsider supplier order should be accepted at $34
Answer: yes
Outsider supplier order should be accepted
Make
Buy
Cost of purchasing
34
Direct materials
9
Direct labor
11
Variable manufacturing overhead
2
Fixed manufacturing overhead, traceable (9*40%)
3.6
Fixed manufacturing overhead, allocated
0
Total
25.6
34
Total relevant cost
=(14700 unit x cost )
376320
499800
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