Paragraph Styles 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. Ar 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 to its own cost of producing the carburetor internally: 22,000 Units Per Unit Per rear Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $ 15 $ 330 000 176, 000 66, 000 66, 000 132,000 770, 000 3 $ 35 $ 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 22,000 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 $220,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Styles 2. Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $14.10 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier However, the company's chief engineer is opposed to making the starters because the production cost per unit is $14.30 as shown below: IPer Unit: Total 7.00 Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead 0 60 Rent 1-50 $106, 500 1 10 s 78, 100 0-60 S 42, 600 $ 14.30 Total product cost If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $106,500) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $83,000 per period. Depreciation is due obsolescence rather than wear and tear. to Required: What is the financial advantage (disadvantage) of making the 7/1.,000 starters instead of buying them from an outside supplier