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Instructions: Troy Manufacturing manufactures many different prodcuts. Help Troy Manufacturing decided how to proceed in these three separate scenarios:

a.

Special order

Troy Mfg. has received a special one-time order for 15,000 small coolers at $5 per unit. Troy currently produces and sells 75,000 units at $8.00 each. This level represents 80% of its capacity. These coolers would be marketed under the wholesaler's name and would not affect Troy's sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. Should Troy accept this offer? Support your answer with expense and income numbers.

quantity

Per Unit

Total income

Special Order

variable costs

incremental income

Decision

b.

Make or buy

Troy Company currently manufactures 75,000 units per year of a key component for its manufacturing process. Variable costs are $2.25 per unit, fixed costs related to making this component are $85,000 per year, and allocated fixed costs are $65,250 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.25 per unit. Should it continue to manufacture the component, or should it buy this component from the outside supplier? Support your decision with analysis of the data provided.

Make

Buy

Units

75,000

75,000

Variable costs

Total Varible costs

Incremental fixed costs

Cost to buy

Total

Difference

Decision

c.

Sell or Process

Troy Company has 10,000 units of its product that were produced last year at a total cost of $150,000. The units were damaged in a rainstorm because the warehouse where they were stored developed a leak in the roof. Troy can sell the units as is for $2 each or it can repair the units at a total cost of $18,000 and then sell them for $5 each. Should Waldo sell the units as is or repair them and then sell them?

Quantity

per unit

Sell repaired

Repair costs

income

Sales at "As is"

incremental income

Decision