1.		Per Unit Differential Costs			15,000 units
		Make	Buy		Make	Buy
	Cost of purchasing........................
	Direct materials.............................
	Direct labor...................................
	Variable manufacturing overhead..
	Fixed manufacturing overhead, traceable1...................................
	Fixed manufacturing overhead, common.....................................
	Total costs.....................................

Financial (disadvantage) of buying the carburetors...........................

2.

3.
	Cost of purchasing (see requirement 1)..........
	Cost of making (see requirement 1)................
	Opportunity costsegment margin foregone on a potential new product line....................
	Total cost........................................................

Financial advantage of buying the carburetors

$60,000

4.

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, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 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 15,000 Units per Year $14 Direct materials ... Direct labor Variable manufacturing overhead ....... Fixed manufacturing overhead, traceable ...... Fixed manufacturing overhead, allocated Total cost ..... $210,000 150,000 45,000 90,000 135,000 $630,000 6* *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 pro- duce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Should the outside supplier's offer be accepted? Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capac- ity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? 3