Exercise 12-3 Make or Buy Decision (LO12-3) 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 $36 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: 20,000 Units Per Per Unit Year Direct materials $13 $260,000 Direct labor 11 220,000 Variable manufacturing 4 80,000 overhead Fixed manufacturing overhead, G# traceable Fixed manufacturing overhead, 9180,000 allocated Total cost $43 $860,000 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value) oped 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 20,000 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 capacity to launch a new product. The segment margin of the new product would be $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 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. Required 1 Required 2 cuired 3 Required 4 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 20,000 carburetors from the outside supplier? Required 2 > $200,000 per year. Given this new assumption, what would be the fi (disadvantage) of buying 20,000 carburetors from the outside supplie 4. Given the new assumption in requirement 3, should the outside su accepted? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Should the outside supplier's offer be accepted? OYes ONO 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. ences Required 1 Required 2 Required 3 Required 4 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 $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Yes ONO
