Exercise $13-3($Algo$)$ Make or Buy Decision $[$L$013-3]$

Troy Engines, Limited, 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, Limited, for a cost of $$40$ per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating

to its own cost of producing the carburetor internally:

$*$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 produce 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, Limited, could use the freed capacity 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 the financial advantage

$($disadvantage$)$ of buying $15,000$ carburetors from the outside supplier?

Given the new assumption in requirement $3,$ should the outside supplier's offer be accepted?

Complete this question by entering your answers in the tabs below.

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 $15,000$ carburetors from the outside supplier?