Troy Engines, Ltd. manufactures a variety of engines for use in heavy equipment.

Question

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 for a cost of $35 per
carburetor. To evaluate this offer, Troy Engines has gathered the following information relating
to its own cost of producing the carburetor internally:

per unit cost 15,000 units per year
direct materials ........... $14 $210,000
direct labor ............... $10 $150,000
variable overhead .......... $9 $135,000
allocated fixed overhead ... $5 $ 75,000

If Troy Engines purchases the carburetors from the outside supplier, the space that is being used
to produce the carburetors can be rented to a small business who will pay Troy $17,000 per year
for the space.

Calculate the decrease in company profits if Troy Engines accepts the outside suppliers offer.
Do not use a minus sign, decimals, or type the word decrease after your answer.

Explanation / Answer

Troy Engines, Ltd. manufactures a variety of engines for use in heavy equipment.

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