Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the parts for its engines, including the carburetors. An outside supplier offered to sell one type of carburetor to Troy Engines, Limited, for a cost of $34 per unit. To evaluate this offer, Troy Engines, Limited, summarized the cost of producing the carburetor internally as follows: Per 19,000 Units Per Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Year $ 16 $ 304,000 10 190,000 2 38,000 9* 12 $ 49 171,000 228,000 $ 931,000 *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 financial advantage (disadvantage) of buying 19,000 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 a segment margin of $190,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 19,000 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 If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? Financial (disadvantage) $ 57,000 < Required 1 Required 2 >
Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the parts for its engines, including the carburetors. An outside supplier offered to sell one type of carburetor to Troy Engines, Limited, for a cost of $34 per unit. To evaluate this offer, Troy Engines, Limited, summarized the cost of producing the carburetor internally as follows: Per 19,000 Units Per Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Year $ 16 $ 304,000 10 190,000 2 38,000 9* 12 $ 49 171,000 228,000 $ 931,000 *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 financial advantage (disadvantage) of buying 19,000 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 a segment margin of $190,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 19,000 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 If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? Financial (disadvantage) $ 57,000 < Required 1 Required 2 >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
h1
Transcribed Image Text:Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the
parts for its engines, including the carburetors. An outside supplier offered to sell one type of carburetor to Troy Engines, Limited, for a
cost of $34 per unit. To evaluate this offer, Troy Engines, Limited, summarized the cost of producing the carburetor internally as follows:
Per 19,000 Units Per
Unit
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
Total cost
Year
$ 16
$ 304,000
10
190,000
2
38,000
9*
12
$ 49
171,000
228,000
$ 931,000
*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 financial
advantage (disadvantage) of buying 19,000 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 a
segment margin of $190,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying
19,000 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
If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial
advantage (disadvantage) of buying 19,000 carburetors from the outside supplier?
Financial (disadvantage)
$
57,000
< Required 1
Required 2 >
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