Make or Buy (Outsourcing) Example #2 Troy Engines, Inc. manufactures a variety of engines for use in heavy equipment. The company has always produced all of the engine components in house, including the carburetors. An outside supplier has offered to sell the carburetors to Troy for a cost of $35 per unit. Use the following information to evaluate whether or not Troy should accept the offer. Direct Materials Direct Labor Variable MOH Fixed MOH, Traceable* Fixed MOH, Allocated Total Cost Per Unit $14 10 3 6 9 $42 15,000 Units $210,000 150,000 45,000 90,000 135,000 $630,000 *One-third supervisory salary; two-thirds depreciation of special equipment (no resale value). 1. Based on the information presented, should Troy Engines accept the offer from the outside supplier? 2. Assume that if Troy Engines purchased the carburetors from the outside supplier, the freed capacity could be used to launch a new product line. The segment margin of the new product would be $150,000 per year. Should Troy Engines accept the offer from the outside supplier if the new product could be produced?

Make or Buy (Outsourcing) Example #2 Troy Engines, Inc. manufactures a variety of engines for use in heavy equipment. The company has always produced all of the engine components in house, including the carburetors. An outside supplier has offered to sell the carburetors to Troy for a cost of $35 per unit. Use the following information to evaluate whether or not Troy should accept the offer. Direct Materials Direct Labor Variable MOH Fixed MOH, Traceable* Fixed MOH, Allocated Total Cost Per Unit $14 10 3 6 9 $42 15,000 Units $210,000 150,000 45,000 90,000 135,000 $630,000 *One-third supervisory salary; two-thirds depreciation of special equipment (no resale value). 1. Based on the information presented, should Troy Engines accept the offer from the outside supplier? 2. Assume that if Troy Engines purchased the carburetors from the outside supplier, the freed capacity could be used to launch a new product line. The segment margin of the new product would be $150,000 per year. Should Troy Engines accept the offer from the outside supplier if the new product could be produced?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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