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Troy Engines, Lid., 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 Futura Company purchases the 77,000 starters that It Installs In its standard line of farm tractors from a supplier for the price of $10.60 Engines. Ltd., for a cost of $36 per unit. To evaluate this offer. Troy Engines, Lid., has gathered the following Information relating to Its 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 own cost of producing the carburetor Internally: them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $10.80 as shown below: 20,890 Per Unit Total Per Units Unit Per Year Direct materials $ 5.00 Direct materials $ 13 $ 260, 020 Direct labor 2.20 Direct labor 11 220, Bee Supervision 1.50 $ 115,506 Variable manufacturing overhead Be , Bee Depreciation 1.30 $ 100, 100 Fixed manufacturing overhead, traceable 120, ege Variable manufacturing overhead Fixed manufacturing overhead, allocated 180, 080 Rent 0.40 $ 30,800 Total cost $ 860, 080 Total product cost $ 10.86 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $115,500) to oversee production. However. Required: the company has sufficient Idle tools and machinery such that no new equipment would have to be purchased. The rent charge above 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be Is based on space utilized In the plant. The total rent on the plant is $82,000 per period. Depreciation is due to obsolescence rather the financial advantage (disadvantage) of buying 20.000 carburetors from the outside supplier? than wear and tear. 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Lid., could use the freed capacity to launch a new product. The Required: segment margin of the new product would be $200.000 per year. Given this new assumption, what would be the financial advantage What is the financial advantage (disadvantage) of making the 77,000 starters Instead of buying them from an outside supplier? (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 Han Products manufactures 39,000 units of part S-6 each year for use on its production line. At this level of activity. the cost per unit Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what for part S-6 Is: would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? Direct materi Direct labor 11. 6 Variable manufacturing overhead Required Required 2 Required 3 Required 4 Fixed manufacturing overhead 12. 09 Total cost per part $ 29.0 Should the outside supplier's offer be accepted? Yes An outside supplier has offered to sell 39,000 units of part S-6 each year to Han Products for $23 per part. If Han Products accepts this ONo offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $89,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: Required 1 Required Required 3 Required 4 What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Suppose that if the carburetors were purchased, Troy Engines, Led., 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? 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