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 $31 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:

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.)

Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $115,640 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

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 $31 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

1a Make Buy Per Unit ($) Total ($) Per Unit ($) Total ($) A Cost of Purchasing 15400 Units from outside (15400 X $ 31) 31 477400 B Cost of Manufacturign 15400 units   Direct materials 9    138600   Direct labor 11    169400   Variable manufacturing overhead 2    30800   Fixed manufacturing overhead, traceable (40%) 92400 36960 Answer   Total cost 24.4 375760 31 477400 Decision : Offer should not be accepted 2a Total cost when use the freed capacity to launch a new product ($) ($) Cost of Making 15400 Units 375760 The segment margin of the new product 115640 Total Cost 491400 477400 Decision : Offer should be accepted

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