Question: Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has...

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:

	Per Unit				15,400 Units Per Year
Direct materials	$	9			$	138,600
Direct labor		11				169,400
Variable manufacturing overhead		3				46,200
Fixed manufacturing overhead, traceable		9*				138,600
Fixed manufacturing overhead, allocated		13				200,200
Total cost	$	45			$	693,000

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Required:

1a. Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

Total Relevant Cost (15,400)

make = buy =

1b. Should the outside suppliers offer be accepted?

	Reject
	Accept

2a. 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 $135,360 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

Total Relevant Cost (15,400)

make = buy =

2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $35 per unit?

	Reject
	Accept