Troy Engines, Limited, 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, Limited, for a cost of $30 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit $ 13 9 3 3* 6 $ 34 13,000 Units per Year $ 169,000 Direct materials Direct labor 117,000 Variable manufacturing overhead 39,000 39,000 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 78,000 $ 442,000 *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 produce the carburetors, what would be the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $130,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier?
Troy Engines, Limited, 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, Limited, for a cost of $30 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit $ 13 9 3 3* 6 $ 34 13,000 Units per Year $ 169,000 Direct materials Direct labor 117,000 Variable manufacturing overhead 39,000 39,000 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 78,000 $ 442,000 *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 produce the carburetors, what would be the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $130,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Troy Engines, Limited, 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, Limited, for a cost of $30 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the
following information relating to its own cost of producing the carburetor internally:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
Total cost
$34
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).
Required 1 Required 2
Per
Unit
Required 3
Required:
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 13,000 carburetors from the outside supplier?
2. Should the outside supplier's offer be accepted?
Complete this question by entering your answers in the tabs below.
Required 4
$ 13
9
3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new
product. The segment margin of the new product would be $130,000 per year. Given this new assumption, what would be
the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?
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3
3*
6
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13,000 Units
per Year
$ 169,000
117,000
39,000
39,000
78,000
$ 442,000
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Transcribed Image Text:mt
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inces
1
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2. Should the outside supplier's offer be accepted?
3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new
product. The segment margin of the new product would be $130,000 per year. Given this new assumption, what would b
the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3 Required 4
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 13,000 carburetors from the outside supplier?
E
< Required 1
< Prev
1 of 8
#
N
Required 2 >
Next >
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