Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment

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 S34 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 14,100 Per Units Unit Per Year $ 9 $126,900 11 155,100 2 28,200 9* 126,900 13 183,300 Total cost $ 44 $620,400 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 Buy Total relevant cost (14,100 units) 1b. Should the outside supplier's offer be a ccepted? O Accept O Reject 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 $133,440 per year. 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 (14,100 units)

Explanation / Answer

1a) Make Buy Direct Materials 126,900 Direct Labor 155,100 Variable manufacturing overhead 28,200 fixed manufacturing overhead 50760 Buy 479400 Total Relevant cost 360,960 479400 1b) Reject 2a) Make Buy Direct Materials 126,900 Direct Labor 155,100 Variable manufacturing overhead 28,200 fixed manufacturing overhead 50760 Buy 479400 Total Relevant cost 360,960 opportunity forgone 133,440 Total Relevant cost 494,400 479,400

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