7-2 (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 $34 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		15,900 Units Per Year
Direct materials	$	9	$	143,100
Direct labor		11		174,900
Variable manufacturing overhead		2		31,800
Fixed manufacturing overhead, traceable		9*		143,100
Fixed manufacturing overhead, allocated		13		206,700
Total cost	$	44	$	699,600

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

2a. 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 $151,560 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

	Make	Buy
Total relevant cost (15,900 units)