Troy Engines, Ltd, manufactures a variety of engines for use in heavy equipment.
ID: 2515964 • Letter: T
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 $35 per unit. To evaluate this offer, Troy Engines, Ltd, has gathered the following information relating to its own cost of producing the carburetor internally Per Units Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed nanufacturing overhead, allocated Total cost 10 150,e00 3 45,000 6 90,e00 433 038,00 One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carbure be the financial advantage (disadvantage) of buying 15.000 carburetors from 2 Should the outside supplier's offer be accepted? the outside supplier? that if the carburetors were purchased. Troy Engines, Ltd, could use the freed capecity to launch a new Prey 1 of 2 Next >Explanation / Answer
Relavent costs = Direct materials + Direct labour + Variable manufacturing overhead + Supervisory salaries
= 14 + 10 + 3 + (6*1/3)
= 14 + 10 + 3 + 2
= 29
1.
Relavent costs to make = 15,000 units * 29 per unit = 435,000
Relavent costs to buy = 15,000 units * 35 per unit = 525,000
Financial disadvantage = 525,000 - 435,000 = 90,000.
2.
The outside supplier offer should not be accepted (as there is finaincial disadvantage).
3.
Relavent costs = Relavent costs to make + Contribution margin lost
= 435,000 + 150,000
= 585,000
Relavent costs to buy = 15,000 units * 35 per unit = 525,000
Financial advantage = 585,000 - 525,000 = 60,000.
4.
The outside suppliers offer should be accepted (as there is finanacial advantage).
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.