Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of thenecessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to TroyEngines, Limited, for a cost of $35 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relatingto its own cost of producing the carburetor internally:Per15,000 UnitsUnitPer YearDirect materials$ 14$ 210,000Direct labor10150,000Variable manufacturing overhead11345,000Fixed manufacturing overhead, traceable6*90,000Fixed manufacturing overhead, allocated9135,000Total cost$ 42$630,000*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 bethe financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier?

Fixed manufacturing overhead- traceable in case of buy = Fixed manufacturing overhead-traceable×2/3=…

Answered: Troy Engines, Limited, manufactures a…

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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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 Per 12,000 Units Unit Per Year $ 12 $ 144,000 8 96,000 2 24,000 9* 12 108,000 144,000 $ 43 $ 516,000 *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…
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