Exercise 13-3 (Algo) Make or Buy Decision [LO13-3] 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: Per Unit $ 13 11 4 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 20,000 Units Per Year $ 260,000 220,000 80,000 120,000 180,000 $ 860,000 69 9 $ 43 *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 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 Required 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? Financial (disadvantage) $ 280,000 X Exercise 13-13 (Algo) Sell or Process Further Decision (LO13-7] Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $75,000 per ton, one-fourth of which is allocated to product X15. Seven thousand nine hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $11 each, or processed further at a total cost of $8,200 and then sold for $14 each. Required: 1. What is the financial advantage (disadvantage) of further processing product X15? 2. Should product X15 be processed further or sold at the split-off point? 1. 2. Financial advantage Product X15 should be $ 12,500 Processed further