Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment

Question

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 $44 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 14,400 Per Units Unit Per Year $ 13 $187,200 15 216,000 3 43,200 6* 86,400 17 244,800 Total cost $ 54 $777,600 *40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required a. 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 Bu Total relevant cost (14,400 units) 1b. Should the outside supplier's offer be accepted? O Accept O 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 $170,640 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) Make Bu Total relevant cost (14,400 units) 2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $44 per unit? Accept O Reject

Explanation / Answer

633600

1)a) Out side supplier offer should not accepted since manufacturinng cost is low- Reject the project.

2.if the company purchased the product from outsider and utilised the plant capacity to introduces to new product then

margin of safety per year = $ 170640

Excess payment (633600-583200) = 50400

Making cost per unit Total direct material 13 187200 Labour 15 21600 voh 3 43200 Total Variable cost 31 252000 Fixed manufacturing cost 6 86400 Fixed manufacturing overhead 17 244800 Total Fixed Cost 23 331200 Total Cost under Making 54 583200 Buying Cost(14400*44)

633600

1)a) Out side supplier offer should not accepted since manufacturinng cost is low- Reject the project.

2.if the company purchased the product from outsider and utilised the plant capacity to introduces to new product then

margin of safety per year = $ 170640

Excess payment (633600-583200) = 50400

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