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 $34 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		15,900 Units Per Year
Direct materials	$	9	$	143,100
Direct labor		11		174,900
Variable manufacturing overhead		2		31,800
Fixed manufacturing overhead, traceable		9*		143,100
Fixed manufacturing overhead, allocated		13		206,700
Total cost	$	44	$	699,600

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Required:

1a.	Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

1b.

Should the outside suppliers offer be accepted?

	Accept
	Reject

2a.

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 $141,560 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

2b.

Should Troy Engines, Ltd., accept the offer to buy the carburetors for $34 per unit?

Accept

Reject

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniorshome nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	920,000	$	264,000	$	403,000	$	253,000
Variable expenses		467,000		113,000		197,000		157,000
Contribution margin		453,000		151,000		206,000		96,000
Fixed expenses:
Depreciation		70,000		8,900		40,900		20,200
Liability insurance		42,800		20,200		7,400		15,200
Program administrators salaries		115,100		40,500		38,700		35,900
General administrative overhead*		184,000		52,800		80,600		50,600
Total fixed expenses		411,900		122,400		167,600		121,900
Net operating income (loss)	$	41,100	$	28,600	$	38,400	$	(25,900)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $41,100 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps discontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.

Required:

1-a.	What is the impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.)

1-b.

Should the housekeeping program be discontinued?

	Yes
	No

2-a.	Prepare a segmented income statement.

2-b.

Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.

	Yes
	No