Exercise 12-3 Make or Buy a Component [LO12-3] Troy Engines, Ltd., manufactures
ID: 2556591 • Letter: E
Question
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 $19 per unit. To evaluate this offer, Troy Engines, relating to its own cost of producing the carburetor internally: Ltd., has gathered the following information 15,700 Per Units Unit Per Year S5 S 78,500 7 109,900 ariable manufacturing overhead 31,400 6 94,200 Direct materials Direct labor Fixed manufacturing overhead, Fixed manufacturing overhead, 9 141,300 allocated 28s455,300 Total cost "40% supervisory salanes: 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.) Total relevant cost 15,700 units b.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 $50,820 making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) per year. Compute the total cost of Total relevant cost (15,700 unitsExplanation / Answer
1a) Calculate total relevant cost :
1b) Troy engines ltd should reject the offer
2a) Calculate total relevant cost :
2b) Troy engines ltd should accept the offer
Make Buy Direct material 78500 Direct labour 109900 Variable manufacturing overhead 31400 Fixed manufacturing overhead (94200*40%) 37680 Purchase cost (15700*19) 298300 Total relevant 257480 298300Related Questions
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