hapter 12 Homework Help Save Exit Submit Check my work 2 Tro

hapter 12 Homework Help Save &Exit; Submit Check my work 2 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 $30 per unit. To evaluate this offer, Troy Engines, Ltd, has gathered the following information relating to its own cost of producing the carburetor internally: ints 13,000 Units Per Year Per Unit eBook Hint Print References Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $13 169,000 9 117,000 39,000 3 39,000 8,000 34 442,000 \'One-third supervisory salaries; two-thirds depkeciation 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 13,000 carburetors from the outside supplier? 2. Should the outside supplier\'s offer be accepted? ppose that if the carburetors were purchased, Troy Engines, Ltd, could use the freed capacity to launch a new product. The 0,000 per year. Given this new assumption, what would be financial advantage segment margin of the new product would be $13 (disadvantage) of buying 13,000 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 below Next >

Solution

1. There would be a financial disadvantage of buying 13,000 carburetors from the outside supplier by $ 4 per unit or $ 52,000 in total, as shown below.

Only the supervisory salaries can be avoided if the carburetors are purchased from outside. The remaining fixed costs are sunk costs and are not relevant for the decision making.

2. The outside supplier\'s offer should be rejected as it would be a financial diadvantage of $52,000.

3. There would be a financial advantage of $ 78,000 of buying the carburetors from the outside supplier as shown below.

4. The outside supplier\'s offer should be Accepted due to the financial advantage of $78,000.

Particulars	Differential Costs Per Unit	13,000 Units
	Make	Buy	Make	Buy
Cost of purchasing		$30		390,000
DIrect Materials	$13		$169,000
Direct Labor	$9		$117,000
Variable manufacturing overheads	$3		$39,000
Fixed manufacturing overheads, traceable	$1		$13,000
Fixed manufacturing overheads, common
Total costs	$26	$30	$338,000	$390,000
Difference in favor of making	$4	$52,000