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: 16,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed sanufacturing overhead, allocated Total cost Per Units unit per Year $ 13 $ 200,000 13 200,000 2 32,000 9 144.000 12 192.000 $ 49 $ 704,000 *One-third supervisory salaries, two thirds depreciation of special equipment (no resale value) 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 16,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd. could use the freed capacity to launch a new product. The segment margin of the new product would be $160.000 per year Given this new assumption, what would be the financial advantage (disadvantage) of buying 16,000 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. Required 1 Required 2 Required 3 Required 4 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) or buying 16,000 carburetors from the outside supplier Financial (disadvantago) 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 saterials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 16.000 Per Units Unit per Year $135 208,000 13 200,000 2 32,000 9 144,000 12 192,000 $ 49 $ 784,000 One third supervisory salaries, two thirds depreciation of special equipment (no resale value) 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 16.000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd. could use the freed capacity to launch a new product. The segment margin of the new product would be $160,000 per year Given this new assumption, what would be the financial advantage (disadvantage) of buying 16,000 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. Required: Required 2 Required Required 4 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 $100,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 16,000 carburetors from the outside supplier Financial advantage Andrett Company has a single product called a Dak. The company normally produces and sells 85000 Daks each year at a selling price of $60 per unit. The company's unit costs at this level of activity are given below. Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling penses Total cost per unit 9.00 2.30 6.00 (5510,000 total) 3.70 3.50 (5297,500 total) 533.60 A number of questions relating to the production and sale of Daks follow Each question is independent Required: 14. Assume thot Andretti Company has sufficient capacity to produce 106,250 Daks each year without any increase in fived manufacturing overhead costs. The compary could increase its unit sales by 25% above the present 85.000 units each year if it were willing to increase the fixed selling expenses by $150.000 What is the financial advantage disadvantage of investing an additional $150.000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 100 250 Daks each year. A customer in a foreign market wants to purchase 21,250 Daks If Andretti accepts this order it would have to pay import duties on the Dales of 3 70 per unit and an additional 517000 for permits and licenses. The only selling costs that would be usociated with the order would be $220 per unit shipping cost. What is the break even price per unit on this order? 3. The company has 500 Daks on hand that have some irregularities and are therefore considered to be seconds. Due to the regularnes, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? 4. Due to a strike in its supplier's plant Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two month period. As an alternative, Andrett could close its plant down entwely for the two months the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two month period and the fixed selling expenses would be reduced by 20% during the two month period a. How much total contribution margin Will Andretti forgo if it closes the plant for two months b. How much totalted cost will the company avoid if it closes the plant for two months What is the financial advantage (disadvantage) of closing the plant for the two month period? d. Should Andretti close the plant for two months? 5. An outside manufacturer has offered to produce 850.00 Doks and ship them directly to Andrett's customers. If Andretti Company accepts this offer the facilities that it uses to produce Dale would be ide, however fixed manufacturing overhead costs would be reduced by 30% Because the outside manufacturer would pay for a constatable selling expenses would be only two thirds of their present amount What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer
