Exercise 11-3 (Algo) Make or Buy Decision [LO11-3]

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 $35 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally:

Per Unit17,000 Units per Year

Direct materials$ 17$ 289,000

Direct labor8136,000

Variable manufacturing overhead468,000

Fixed manufacturing overhead, traceable6*102,000

Fixed manufacturing overhead, allocated9153,000

Total cost$ 44$ 748,000

*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 produce the carburetors, what would be the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier?

2. Should the outside suppliers offer be accepted?

3. 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 $170,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier?

4. Given the new assumption in requirement 3, should the outside suppliers offer be accepted?

Troy Engines, Limited, manufactures a variety of engines for use in hoavy 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 $35 per unil. To evaluate this offet. Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internaly: Required: the financial advantage (disadvantnge) of buying 17,000 carburetors from the outside supplior? 2. Should the outside supplier's offer be acceptod? 3. Suppose that if the carburetors were purchased. Troy Engines, Limited, could use the freed capecity to launch a new product. The segment margin of the now product would be $170,000 per year, Given this new assumption, whiat would be the financial advantage (disadvantage) of buying 17000 carbutetors from the outside supplier? 4. 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 alternativo use for the facilites that are now being used to produce the carburetors, what the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a ne segment margin of the new product would be $170,000 per year. Given this new assumption, what would be the finar (disadvantage) of buying 17,000 carburetors from the outside supplier? 4. 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 17,000 carburetors from the outside supplier? the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $170,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier? 4. 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. Suppose that if the carburetors wert purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $170,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 17,000 carburetors from the outside supplier