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 $36 per unit. To evaluate this offer, Troy Engines, Ltd., 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 20,000 carburetors from the outside supplier?

2. Should the outside suppliers 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 $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?

4. Given the new assumption in requirement 3, should the outside suppliers offer be accepted?

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 20,000 Units Per Per Unit Year $ 13 $ 260,000 11 220,000 4 80,000 6* 120,000 9 180,000 $ 43 $ 860,000 Total cost *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 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) of buying 20,000 carburetors from the outside supplier? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Should the outside supplier's offer be accepted? Yes Ono Complete this question by entering your answers in the tabs below. LUULUUUUUUUULLLLLLLL Required 1 Required 2 Required 3 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 $200,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Yes Ono No