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 $36 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 Per Unit $ 13 11 4 6* $ 43 28,eee Units Per Year $ 260,000 220,000 80,000 120,000 180,000 $ 860,000 "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 20.000 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 $200.000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?
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 $36 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 Per Unit $ 13 11 4 6* $ 43 28,eee Units Per Year $ 260,000 220,000 80,000 120,000 180,000 $ 860,000 "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 20.000 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 $200.000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
owe
subject-Accounting
Transcribed Image Text:ces
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 $36 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
Per
Unit
$ 13
11
4
6*
9
$43
Required 1 Required 2 Required 3
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).
Required:
Complete this question by entering your answers in the tabs below.
Required 4
28,eee Units Per
Year
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 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 $200.000 per year. Given this new assumption, what would be the financial
advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?
$ 260,000
220,000
80,000
120,000
180,000
$ 860,000
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?
Required 2 >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education