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. Ah outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $47 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 14,400 Per Units Unit Per Year Direct materials Direct labor Variable manufacturing overhead $13 $187,200 15 216,000 3 43,200 Fixed manufacturing overhead, traceable 9 129,600 244,800 Fixed manufacturing overhead, allocated 17 Total cost $57 $820,800 40% supervisory salaries; 60% depreciation of special equipment (no resale value) Required: a. Assuming that the company has no alternative use for the facilities that are now " being used to producé the carburetors, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

Explanation / Answer

1 Per unit Total Make Buy Make Buy Direct materials 13 187200 Direct labor 15 216000 Variable manufacturing overhead 3 43200 Fixed manufacturing overhead traceable 3.6 51840 Purchase cost 47 676800 Total 498240 676800 Make Buy Total relevant cost (14400 units) 498240 676800 1b Reject

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