Need help **Troy Engines, Ltd.: Evaluating Outsourcing Options for Carburetor Production**Troy Engines, Ltd., a manufacturer of engines for heavy equipment, typically produces all necessary engine components, including carburetors. Recently, an outside supplier proposed selling a particular carburetor to Troy Engines at $36 per unit. To assess the offer, Troy Engines compiled the following internal production cost data for 20,000 carburetors:### Internal Production Costs| Cost Component | Per Unit | Total (20,000 units) ||----------------------------------------|----------|----------------------|| Direct Materials | $13 | $260,000 || Direct Labor | $11 | $220,000 || Variable Manufacturing Overhead | $4 | $80,000 || Fixed Manufacturing Overhead (traceable)* | $6 | $120,000 || Fixed Manufacturing Overhead (allocated) | $9 | $180,000 || **Total Cost** | $43 | $860,000 |*Note: Fixed manufacturing overhead (traceable) includes one-third supervisory salaries and two-thirds depreciation of special equipment, with no resale value.### Required Analysis1. **Financial Evaluation of Outsourcing:** - If there is no alternative use for the facilities producing carburetors, determine the financial advantage or disadvantage of purchasing 20,000 units from the supplier. 2. **Decision on Supplier Offer:** - Should Troy Engines accept the outside supplier's offer based on the cost analysis?3. **Alternative Scenario with New Product:** - If freeing up production capacity for a new product (projected to generate $200,000 segment margin per year) is possible by outsourcing, evaluate the financial impact. 4. **Revised Decision:** - With the potential for launching a new product, should the supplier’s offer be accepted?### InstructionsComplete the evaluation by providing your answers in the designated fields for each of the required assessments. Consider both cost savings and opportunity costs in your decisions. **Troy Engines, Ltd.: Cost Analysis for Carburetor Production**Troy Engines, Ltd., manufactures engines for heavy equipment and produces all necessary parts, including carburetors. An outside supplier has offered to sell one type of carburetor for $36 per unit. Below is the cost analysis for producing the carburetor internally:| Cost Components | Per Unit | 20,000 Units Per Year ||-----------------------------------------|----------|-----------------------|| Direct materials | $13 | $260,000 || Direct labor | $11 | $220,000 || Variable manufacturing overhead | $4 | $80,000 || Fixed manufacturing overhead, traceable | $6* | $120,000 || Fixed manufacturing overhead, allocated | $9 | $180,000 || **Total cost** | **$43** | **$860,000** |\*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).**Requirements:**1. **Financial Impact of Outsourcing:** - Assess the financial advantage/disadvantage of purchasing 20,000 carburetors from the supplier, assuming no alternative use for the current production facilities.2. **Supplier Offer Decision:** - Determine if the outside supplier’s offer should be accepted based on the analysis.3. **New Product Opportunity:** - Evaluate if the company could use the freed capacity to launch a new product with a segment margin of $200,000 per year, and reassess the financial advantage/disadvantage of purchasing from the supplier.4. **Re-evaluation of Supplier Offer:** - Decide if the supplier’s offer should be accepted under the new assumptions.Complete the analysis by entering responses in the labeled tabs for each requirement.

Decision-making in accounting involves analyzing financial information and making informed choices…

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 $36 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 20,000 Units Per Per Unit Year Direct materials $ 13 $ 260,000 Direct labor 11 Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 220,000 80,000 120,000 4 6* 9. 180,000 Total cost $ 43 $ 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, Ltd., 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?

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q