Exercise 12-3 Make or Buy Decision [LO12-3] Troy Engines, Ltd, manufactures a va
ID: 2571774 • Letter: E
Question
Exercise 12-3 Make or Buy Decision [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 $34 per unit. To evaluate this offer, Troy Engines, Ltd, has gathered the followling Information relating to its own cost of producing the carburetor Internally 21,000 Units Per Unit Per Year 14 294,000 12 252, 000 42,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 9 189,000 12 252,000 S 49 $1,029,000 'One-third supervisory salaries: two-thirds depreciation of special equipment (no resale value). Required 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 21,000 carburetors from the outside supplier? 2. 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 $210.000 per year. Given this new assumption what would be financial advantage (disadvantage) of buying 21.000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs belovw Required 1 Required 2 Required 3 Required 4 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 21,000 carburetors from the outside supplier? Required 2 Complete this question by entering your answers in the tabs below Required Required 2 Required 3 Required 4 Should the outside supplier's offer be accepted? Required 1 Required3>Explanation / Answer
Req 1:
Req2: Offer should be accepted
Req3:
Req4: yes, accepted
A Buying costs Total units 21,000 Rate 34 Cost of buying from outside supplier 714,000 B Cost savings: Particulars Per unit Total Direct materials 14 294,000 Direct labor 12 252,000 Variable manufacturing OH 2 42,000 Supervisor salaries 3 63,000 Total savings 31 651,000 C=A-B Advantage/(disadvantage) of buying 63,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.