uestion 2 (12 points Troy Engines, Ltd., manufactures a variety of engines for u
ID: 341292 • Letter: U
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uestion 2 (12 points Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company usually produces all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to produce and sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per carburetor. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing this carburetor internally: Per 15,000 Carburetors $14 10 Direct materials (variable) Direct labor (variable) Variable manufacturing overhead Fixed manufacturing overhead (FMOH), traceable Fixed manufacturing overhead (FMOH), allocated Fixed sellin Total cost $210,000 150,000 45,000 90,000 135,000 $44 S660,000 * One-third of the traceable FMOH is supervisory salaries, a step cost. One supervisor is required for every 15,000 carburetors. The one supervisor now employed can be laid off if product is outsourced. The remainder of the traceable FMOH represents depreciation of special equipment. This equipment has no resale value and will be retained even if the product is outsourced. ** Allocated FMOH and selling costs are corporate-level costs. The outsourcing decision is not expected to affect the total outflow on these accounts, over the decision's horizon.Explanation / Answer
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$ Per Unit Selling Price of new product 15 Variable Cost: Inventoriable cost 6 9-3 Selling cost 4 5-1 Total Variable Cost 10 Gross Margin 5 Loss of profit if purchased 160000 Given in question Break even sale volume (Loss of profit/gross margin) 160000/5 32000 Hence, it will be profitable to buy from outside over and above 32000 sales volumeRelated Questions
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