excercie 12-3

48,000 46.000 66,000 36.000 ed on the basis of sales dollars agement is concerned about the continued losses shown by the racing bikes and wants ommendation as to whether or not the line should be discontinued. The special equipment used to a rec- produce racing bikes has no resale value and does not wear out ired the financial advantage (disadvantage) per quarter of discontinuing the Racing e production and sale of racing bikes be discontinued? a properly formatted segmented income statement that would be more useful to man- ent in assessing the long-run profitability of the various product lines EXERCISE 123 Make or Buy Decision Troy ingines, Ltd., has always produced ali 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 manufactures a variety of engines for use in heavy equipment. The company of the necessary parts for its engines, including all of the carburetors. Am to its own cost of producing the carburetor internally: Per Unit 15,000 Units per Year 10 3 6* 9 $42 $210,000 150,000 45,000 90,000 135,000 $630,000 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost . . . . One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 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? 2. Should the outside supplier's offer be accepted? 3. 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