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

$42      

$630,000

What will be the total relevant cost of 15,000 units, if they are manufactured internally?

What will be the total relevant cost of 15,000 units, if they are manufactured internally?

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

Explanation / Answer

Spread = (34.40-32)*4.1 =$9.84 MILLION

Total floatation cost = 9.84 million +.905 million + .25 million =10.995 million

flotation cost as a percentage of fund raised =10.995/(32*4.1) =8.38%

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