E ch.10 Warm-up Exercise Level Three-What\'s Due w/ Level Three-What\'s Due w O
ID: 2576271 • Letter: E
Question
E ch.10 Warm-up Exercise Level Three-What's Due w/ Level Three-What's Due w O | ezto.mheducation.com/hm.tpx 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 $18 per unit. To evaluate this offer. Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 15.900 Units Per Unit Per Year Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 5 5 79,500 7 111.300 1 15,900 6 95,400 9 143,100 Total cost s 28 $445.200 "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.) Make Buy Total relevant cost (15,900 units) 1b. Should the outside supplier's offer be accepted? O Reject O Accept 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 548.340 per year. Compute the total cost of making and buying the parts (Round your Fixed manufacturing overhead per unit rate to 2 de cimals Make Total relevantoost (15,900 units)Explanation / Answer
1a)Fixed allocated cost is irrelevant while making decision as it will be incurred whether manufactured or purchased .
also fixed manufacturing overhead -traceable ,supervisory salaries will be eliminated if purchased ,so it is a relevant cost. 6*.40=2.4
Total relevant cost of manufacturing =5+7+1+2.4 = 15.4
1b)No as it will cost more if purchased (Reject)
2)
Make Buy Cost 15900*15.4 15900*18 244860 286200Related Questions
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