10-001 htps er 12 Homework Troy Engines, Ltd, manufactures a varety of engines f

Question

10-001 htps er 12 Homework Troy Engines, Ltd, manufactures a varety of engines for use in heavy equipment The company has ahways produced all of the necessary parts for its engines, including al of the carburetors An outside supplier has offered to sell one type of carburesor to Troy Engines. Ltd. for a cost of $39 per unit To evatuate this offer, Troy Engines. Ltd, has gathered the tolowing informasion reliating to ts own cont of producing the carbunesor irnemally 21,000 units Unit Per Year Direct materials Direct laber Variable nanufacturing overhead Fixed nenufacturing overhead, s18 s 378,880 231,e08 63,800 63,800 126,800 41 61,80 Fixed manufacturing overtead, One-thive supervisony saianies tvo thirds depreciation of special equipment ino resale t Assuming the company hes no atereative use for the feclinies that are now being used to produce the carburesors what would be 2 Should the outside suppliers offer be accepted? ]. Supoose net the carburesos were purchased. Trey Ergres Ltd. could use pe teed capacity to bunch new prodot Tre of the ne product would be 5210,000 per year Given this new assumption what would be tinencial advareage Ssadvantagn) ot buying 21000 carburetoes trom the outside supplier? Given the new assumotion in requrement 3 shouid the outside supplier's offer be acceoned? O Type here to search 40

Explanation / Answer

1 Per unit Total Make Buy Make Buy Direct materials 18 378000 Direct labor 11 231000 Variable manufacturing overhead 3 63000 Fixed manufacturing overhead traceable 1 21000 Purchase cost 39 819000 Total 693000 819000 Financial disadvantage=$126000(693000-819000) 2 Reject 3 Make Buy Total cost 693000 819000 Opportunity cost 210000 Total relevant cost 903000 819000 Financial advantage=$84000(903000-819000) 4 Accept

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