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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
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 $33 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 18,000 Units Per Per Unit Year $15 $270,000 Variable manufacturing overhead 162,000 72,000 Fixed manufacturing overhead, traceable 6 108,000 Fixed manufacturing overhead, allocated Total cost 162,000 $43 $ 774,000 "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 18,000 carburetors from the outside supplier? I If the answer is a financial disadvantage, then enter the answer using a sign (e.g., -30,000) -72,000
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