1.) 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:

	Per Unit				12,000 Units Per Year
Direct materials	$	12		$	144,000
Direct labor		8			96,000
Variable manufacturing overhead		2			24,000
Fixed manufacturing overhead, traceable		9	*		108,000
Fixed manufacturing overhead, allocated		12			144,000
Total cost	$	43		$	516,000

*One-third supervisory salaries; two-thirds depreciation 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 12,000 carburetors from the outside supplier?

2. Should the outside suppliers offer be accepted?

3. 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 $120,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 12,000 carburetors from the outside supplier?

4. Given the new assumption in requirement 3, should the outside suppliers offer be accepted?

2.) The Happy Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	922,000		$	264,000		$	408,000		$	250,000
Variable manufacturing and selling expenses		460,000			112,000			192,000			156,000
Contribution margin		462,000			152,000			216,000			94,000
Fixed expenses:
Advertising, traceable		69,700			8,800			40,300			20,600
Depreciation of special equipment		44,000			20,900			7,900			15,200
Salaries of product-line managers		113,600			40,300			38,000			35,300
Allocated common fixed expenses*		184,400			52,800			81,600			50,000
Total fixed expenses		411,700			122,800			167,800			121,100
Net operating income (loss)	$	50,300		$	29,200		$	48,200		$	(27,100)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

3.) Makers manufactures and sells a gold bracelet for $400.00. The companys accounting system says that the unit product cost for this bracelet is $263.00 as shown below:

Direct materials	$	142
Direct labor		82
Manufacturing overhead		39
Unit product cost	$	263

The members of a wedding party have approached Imperial Jewelers about buying 29 of these gold bracelets for the discounted price of $360.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $467 and that would increase the direct materials cost per bracelet by $10. The special tool would have no other use once the special order is completed.

To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $11.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding partys order using its existing manufacturing capacity.

Required:

1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party?

2. Should the company accept the special order?