PROBLEM 2:

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 $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:

Direct materials $-14 $ 218,888 Direct labor 18 158,888 variable manufacturing overhead 3 45,888 Fixed manufacturing overhead, traceable 6* 88,888 Fixed manufacturing overhead, allocated 8 135,888 Total cost $ 42 $ 333,333