e I https//newconnect.mheducat nnect.html t 11-1 Week 11 Practice 6 Troy Engines

Question

e I https//newconnect.mheducat nnect.html t 11-1 Week 11 Practice 6 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 sanufacturing overhead Fixed manufacturing overhead, traceable Pixed manufacturing overhead, allocated Total cost 17 289,800 8 13%,000 6 182,000 s4 748,800 One-third supervisory salaries, two-thirds depreciation of special equipment (no resale value). 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 17000 carburetors from the outside supplier? 2 Suppose that frthe cutos were purchased. Toy Engines, Ltd Should the outside supplier's offer be accepted? 3 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 $170,000 per year Given this new assumption, what would be financial advantage (disadvantage) of buying 17000 carburetors from the outside supplier? 4. Given the new ossumption in requirement 3, should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs below Rnnirnd | ???..aired? Rni.ired3 Ren.red 4 ?Prey 20, 3111 Next > o search TOSHIBA

Explanation / Answer

1 Per unit Total Make Buy Make Buy Direct materials 17 289000 Direct labor 8 136000 Variable manufacturing overhead 4 68000 Fixed manufacturing overhead traceable 2 34000 Purchase cost 35 595000 Total 527000 595000 Financial disadvantage=$68000(527000-595000) 2 Reject 3 Make Buy Total cost 527000 595000 Opportunity cost 170000 Total relevant cost 697000 595000 Financial advantage=$102000(697000-595000) 4 Accept

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