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 $34 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 15,800 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Per Units Unit Per Year $ 9 $142,200 11 173,800 2 31,600 9* 142,200 13 205,400 $44 $695,200 Total cost "40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required 1a. Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts. (Round you Flxed manufacturing overhead per unit rate to 2 decimals.) ake Buy Total relevant cost (15,800 units) 1b. Should the outside supplier's offer be accepted? Accept Reject 2a. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed launch a new product. The segment margin of the new product would be $138,720 per year overhead per unit rate to 2 decimals) tne total cost of making and buying the parts. (Round your Fixed manufacturing Make Total relevant cost (15,800 units) Buy

Explanation / Answer

1a) Total relevant cost :

1b) Reject

2a) Total relevant cost :

2b) Accept

Make Buy Direct material 142200 Direct labour 173800 Variable manufacturing overhead 31600 Fixed manufacturing overhead 56880 Purchase cost 537200 Total relevant cost 404480 537200

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