Katrina Flatt Managerial Accounting: Acct 325 Face to Face Spring 2018 Prof Jeff
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Katrina Flatt
Managerial Accounting: Acct 325 Face to Face Spring 2018 Prof Jefferies - Web BB & Connect
Ch 12 Exercises
2.
value:
5.00 points
Exercise 12-3 Make or Buy a Component [LO12-3]
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 $43 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 $171,760 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 $43 per unit?
Garrison 15e Recheck 2014-12-31
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Katrina Flatt
Managerial Accounting: Acct 325 Face to Face Spring 2018 Prof Jefferies - Web BB & Connect
Ch 12 Exercises
instructions | help
2.
value:
5.00 points
Exercise 12-3 Make or Buy a Component [LO12-3]
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 $43 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 Unit 14,600 Units
Per Year
Direct materials $ 13 $ 189,800
Direct labor 15 219,000
Variable manufacturing overhead 2 29,200
Fixed manufacturing overhead, traceable 6* 87,600
Fixed manufacturing overhead, allocated 17 248,200
Total cost $ 53 $ 773,800
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
Required:
1a.
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.)
1b. Should the outside supplier’s offer be accepted?
Accept
Reject
2a.
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 $171,760 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)
2b.
Should Troy Engines, Ltd., accept the offer to buy the carburetors for $43 per unit?
Accept
Reject
Garrison 15e Recheck 2014-12-31
Hints
References
eBook & Resources
Hint #1
Check my work
©2018 McGraw-Hill Education. All rights reserved.
Requires a modern browser - e.g. Safari 1, Netscape 6 or IE 5
Ch 12 Exercises
instructions | helpExplanation / Answer
1 Per unit Total Make Buy Make Buy Direct materials 13 189800 Direct labor 15 219000 Variable manufacturing overhead 2 29200 Fixed manufacturing overhead traceable 2.4 35040 Purchase cost 43 627800 Total 473040 627800 Make Buy Total relevant cost 473040 627800 1b Reject 2a Make Buy Total cost 473040 627800 Opportunity cost 171760 Total relevant cost 644800 627800 2b Accept
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