Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of theparts for its engines, including the carburetors. An outside supplier offered to sell one type of carburetor to Troy Engines, Limited, for acost of $40 per unit. To evaluate this offer, Troy Engines, Limited, summarized the cost of producing the carburetor internally asfollows:Direct materialsDirect laborVariable manufacturing overheadFixed manufacturing overhead, traceableFixed manufacturing overhead, allocatedTotal costPerUnit$ 18929*12$ 5018,000 UnitsPer Year$ 324,000162,00036,000162,000216,000$ 900,000*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).Required:1. If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financialadvantage (disadvantage) of buying 18,000 carburetors from the outside supplier?2. Should the outside supplier's offer be accepted?3. Suppose if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product with asegment margin of $180,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying18,000 carburetors from the outside supplier?4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?

In Make vs buy analysis , only relevant cost must be considered. Relevant cost are those cost that…

rhead ad, traceable ad, allocated Per Unit $ 18 9 2 9* 12 $ 50 18,000 Units Per Year $ 324,000 162,000 36,000 162,000 216,000 $ 900,000 two-thirds depreciation of special equipment (no resale value). ative use for the facilities being used to produce the carburetors, what would be the financial buying 18,000 carburetors from the outside supplier? offer he accented?

rhead ad, traceable ad, allocated Per Unit $ 18 9 2 9* 12 $ 50 18,000 Units Per Year $ 324,000 162,000 36,000 162,000 216,000 $ 900,000 two-thirds depreciation of special equipment (no resale value). ative use for the facilities being used to produce the carburetors, what would be the financial buying 18,000 carburetors from the outside supplier? offer he accented?

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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