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Safari File Edit View History Bookmarks Window Help 02L Economics Book Apple Philosophy Link Sports and Society connect UA Student Center Portal Marketing St System SONABu Chapter 12 Homework Assignment 3 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, Engines, Ltd, for a cost of $36 per unit. To evaluate this offer, Troy Engines, Ltd has gathered the following information relating to its own cost of producing the carburetor internally 2.5 ncluding all of the carburetors An outside supplier has offered to sell one type of carburetor to Troy 20,003 Per Tear faeturing eoverhead, traceable Lxed manufacturing overhaad, allocate Total coa One-thied supervisory saiaries; two-thirds depreciation of specisl equipment (no resale value). t. Assuming the company has no altemative use for the feclities that are now being used to produce the carburetors, what would be the financial adventage (disadvantage) of buying 20,000 carbunetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that it the carburetors were purchased, Troy Engines, Ltd, could use the freed capecity to launch a new product. The segment margin of the new product would be $200,000 per year. Given this new disadvantage) of buying 20,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside suppliers offer be accepted? ences1 assumption, what would be financial advantage Complete this question by entering your answers in the tabs below 1 Requred 2 Required Assuming the company has no aternative use mould be the financial for the facities that are now being used to produce the carburetors, what advantage (Gisedvantage) of buying 20,000 carburetors from the outside Prev 3016 Next

Explanation / Answer

1 Purchase price from supplies 36 Avoidable cost Direct material 17 Direct labor 10 Variable manufacturing overheads 2 Supervisor salaries 3 Total avoidable cost per unit 32 Advantage / (disadvantage) -4 (32-36) Number of units 20000 Total disadvange -80000 2 No as it has a disadvantage 3 Total disadvantage -80000 Segment margin for new product 200000 Advantage / (disadvantage) 120000 4 Yes as it has a advantage of 120,000

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