1)Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?2)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 $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of thenecessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to TroyEngines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to itsown cost of producing the carburetor internally:20,000UnitsPerperUnitYear$ 17 $ 340,000220,000Direct materialsDirect labor11Variable manufacturing overheadFixed manufacturing overhead, traceableFixed manufacturing overhead, allocated60,0003*60,000120,000$ 40 $ 800,0006.Total cost*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

The segmented income statement of a business organization provides additional details by breaking…

Answered: 1) Assuming the company has no…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?

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 $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?

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 $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its
own cost of producing the carburetor internally:
20,000
Units
Per
per
Unit
Year
$ 17 $ 340,000
220,000
Direct materials
Direct labor
11
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
60,000
3*
60,000
120,000
$ 40 $ 800,000
6.
Total cost
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

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