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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $107.0 p nit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: Per 42,000 Units Unit per Year $ 23 $ 966,000 28 1,176,000 21 882,000 Fixed manufacturing overhead, traceable 33.0 1,386,000 Fixed manufacturing overhead, allocated 27 1,134,000 Direct materials Direct labour Variable manufacturing overhead Total cost $132.0 $5,544,000 *One-third supervisory salaries, two-thirds depreciation of special equipment (no resale value).

Explanation / Answer

1a ) Differential analysis :

1b) No, outside supplier should not be accepted the offer

1a ) Differential analysis :

2b) yes, outside supplier should be accepted the offer

Maka Buy Direct material 966000 Direct labour 1176000 Variable manufacturing overhead 882000 Fixed manufacturing overhead 462000 Purchase cost (42000*107) 4494000 Total 3486000 4494000

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