10.00 points Exercise 12-3 Make onent [L012-3] Troy Engines, Ltd., always produc
ID: 2573842 • Letter: 1
Question
10.00 points Exercise 12-3 Make onent [L012-3] Troy Engines, Ltd., always produced all of the necessary parts for its supplier has offered to sell one type of carburetor to Troy Engines, Ltd, for a cost of $46 per unit To evakuate this offer, Troy Engines, Ltd, has gathered the following information relating to its own cost of producing the carburetor internaly equipment The company has including all of the carburetors An outside a variety of engines for use in heavy Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Per Units Unit Per Year S 13 $191,100 15 220,500 2 29,400 9 132,300 17 249,900 Total cost $ 56 $823,200 "40% supervisory salaries, 60% depreciation of special equipment (no resale value) Required: la. 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.) Total relevant cost (14,700 units) b. Should the outside supplier's offer be accepted? O Reject O 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 $193,280 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) Total relevant cost (14,700 units) 2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $46 per unit? O Accept O RejectExplanation / Answer
1a. Total relevant cost of Make 14,700 units = cost of Direct material material + cost of Direct labour + Variable manufacturing overhead + Supervisor salaries
= $191,100 + $220,500 + $29,400 + $132,300*40%
= $ 493,920
Total relevant cost of buying = 14,700 units *$46
= $676,200
Note :- Deprecation and fixed manufacturing overhead allocated are sunk cost which are not relevant for Make or buy decision making based on relevant costing.
1b. Reject Suppliers buying option as the relevant cost of making is less than buying option by $182,280.
2a. Relevant cost of buying option = $46*14,700 units = $676,200
Relevant cost of make option = Direct material + Direct labour + Variable manufacturing overhead + Supervisor salary + Opportunity cost of using facility
= $191,100 + $200,500 + $29400+ $132,300*40% + $193,280
= $687,200
2b. Accept the buying option as it lower than the make option by $11,000.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.