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 supplier has outside to sell one type of carburetor to Troy Engines, Ltd., for a cost of $19 per unit. To produting the catburetor internaiLs gathered the folowing information relating to tsown cost f producing the carburetor internally: Direct materials Direct labor Variable ma Fixed manufacturing Fixed 15,800 Per Units Unit Per Year $ 5 S 79,000 7 110,600 2 31,600 6 94,800 9 142,200 ring overhead ring overhead, allocated Total cost s 29 $458,200 "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 your Fixed manufacturing overhead per unit rate to 2 decimals.) Total relevant cost (15,800 units) 1b. Should the outside supplier's offer be accepted? O Accept

Explanation / Answer

Question 1a. Make Buy Incremental No of units 15800 15800 Costs: Direct Material 79000 -79000 Direct Labour 110600 -110600 Variabl Manufacturing Overhead 31600 -31600 Cost of Purchase 300200 300200 Total Relevent Cost 221200 300200 79000 Question 1b. Reject the offer. Question 2a. Make Buy Incremental No of units 15800 15800 Costs: Direct Material 79000 -79000 Direct Labour 110600 -110600 Variabl Manufacturing Overhead 31600 -31600 Fixed Manufacturing Overhead-Traceable 94800 -94800 Cost of Purchase 300200 300200 New Product segment Margin -52080 -52080 Total Relevent Cost 316000 248120 -67880 Question 2b. Accept the offer.

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