Troy Engines, Limited, 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, Limited, for a cost of $35 per unit. To evaluate this offer, Troy Engines, Limited, 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
6* g
43
14,000 Units per Yean
$ 196,000
140,000
56,000
84,000
126,000
$ 602,000
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).
Required:
- 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 14,000 carburetors from the outside supplier?
- Should the outside supplier's offer be accepted?
- Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $140,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 14,000 carburetors from the outside supplier?
- 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
Troy Engines, Limited, 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, Limited, for a cost of $35 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: 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 14,000 carburetors from the outside supplier? 2 Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines. Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $140,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 14,000 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. Assuming the company has no altemative ure for the facilities that are now being used to produce the carburetors, what would be the financial adyantage (diradvantage) of buying 14,000 carburetors from the outside supplier? Troy Engines. Limited, 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, Limited, for a cost of $35 per unit. To evaluate this offer. Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: 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 (cisadvantage) of buying 14,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines. Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $140.000 per year. Given this new assumption. what would be the financial advantage (disadvantage) of buying 14,000 carburetors from the outside supplier? 4. Given the new assumption in requilement 3 , should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs below. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be 5140,000 per year. Glven this new assumption, what would be the finandal advantage (disadvantage) of buying 14,000 carburetors from the outside supplien