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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $99.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: PerUnit 39,000 Unitsper Year Direct materials $ 22 $ 858,000 Direct labour 26 1,014,000 Variable manufacturing overhead 19 741,000 Fixed manufacturing overhead, traceable 30.0 * 1,170,000 Fixed manufacturing overhead, allocated 25 975,000 Total cost $ 122.0 $ 4,758,000 * One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1-a. Compute the total differential cost per unit for producing and buying the product. (Round your answers to 1 decimal places.)
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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $99.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: PerUnit 39,000 Unitsper Year Direct materials $ 22 $ 858,000 Direct labour 26 1,014,000 Variable manufacturing overhead 19 741,000 Fixed manufacturing overhead, traceable 30.0 * 1,170,000 Fixed manufacturing overhead, allocated 25 975,000 Total cost $ 122.0 $ 4,758,000 * One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1-a. Compute the total differential cost per unit for producing and buying the product. (Round your answers to 1 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $99.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: |
| Per Unit |
39,000 Units per Year |
|||||
| Direct materials | $ | 22 | $ | 858,000 | ||
| Direct labour | 26 | 1,014,000 | ||||
| Variable manufacturing |
19 | 741,000 | ||||
| Fixed manufacturing overhead, traceable | 30.0 | * | 1,170,000 | |||
| Fixed manufacturing overhead, allocated | 25 | 975,000 | ||||
| Total cost | $ | 122.0 | $ | 4,758,000 | ||
| * | One-third supervisory salaries; two-thirds |
| Required: |
| 1-a. |
Compute the total differential cost per unit for producing and buying the product. (Round your answers to 1 decimal places.) |
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