roy 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:

Required information 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per Unit $14 10 3 6* 9 $42 15,000 Units per year $210,000 150,000 45,000 90,000 135,000 $630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Requirement 2: 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 $150,000 per year. (a)Build a table comparing the costs to make or buy the carburetors, considering the $150,000 segment margin that would be lost if we make the carburetors internally. A B D 1 Total Costs Make Buy E F Differential Costs Make Buy 2 3 Cost to Purchase 4 5 Direct Materials 6 7 Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead, Traceable Fixed Manufacturing Overhead, Common 8 9 10 11 Opportunity Cost 12 13 Total Costs (b) What would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Financial Advantage (Disadvantage) of Buying Carburetors (c) Should Troy Engines, Ltd., accept the offer to buy the carburetors for $35 per unit? (Click to select)