Should the production and sale of racing bikes be discontinued? Prepare a properly formatted segmented income statement that would be more useful to man- agement in assessing the long-run profitability of the various product lines. mation ase A and Case B: 100 machine is the company's chine to use in addition to the ve will continue to be used to I production. This will increase enough to require increases in fixed manufacturing overhead EXERCISE 12-3 Make or Buy Decision LO12-3 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: management is considering savings in direct materials ange will have no effect on e to less waste. 15,000 Units Per Unit per Year $210,000 150,000 $14 Direct materials. Direct labor ppropriate column to indi- ped in Case A and Case B. Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 45,000 3. 90,000 6* 135,000 9. $630,000 $42 Total cost Case B Relevant Irrelevant *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to pro- duce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Should the outside supplier's offer be accepted? 2. 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capac- ity to launch a new product. The segment margin of the new product would be $150,000 year. Given this new assumption, what would be financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? per