Exercise 10-3 Make or Buy a Component [LO10-3] Troy Engines, Ltd., manufactures
ID: 2467713 • Letter: E
Question
Exercise 10-3 Make or Buy a Component [LO10-3]
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 $32 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 $121,960 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)
Should Troy Engines, Ltd., accept the offer to buy the carburetors for $32 per unit?
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 $32 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
1 Per unit Total Make Buy Make Buy Direct materials 9 140400 Direct labor 11 171600 Variable manufacturing overhead 3 46800 Fixed manufacturing overhead traceable 2.4 37440 Purchase cost 32 499200 Total 396240 499200 Make Buy Total relevant cost 396240 499200 1b Reject 2a Make Buy Total cost 396240 499200 Opportunity cost 121960 Total relevant cost 518200 499200 2b Accept
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.