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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

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 15,000 Units Per Year
Direct materials $ 14 $ 210,000
Direct labor 10 150,000
Variable manufacturing overhead 3 45,000
Supervisory salaries 2 30,000
Depreciation of special equipment (no resale value) 4 60,000
Fixed manufacturing overhead 9 135,000
Total cost $ 42 $ 630,000

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. Given this new assumption, what would be financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier?

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