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Troy Engines, Ltd, manufactures a varlety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its
Troy Engines, Ltd, manufactures a varlety 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 informotion relating to its own cost of producing the carburetor internally Per Units Unit Per Year Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 14 294, 000 12 252,000 42,000 9189,000 252, 000 12 6 49 1,029,000 '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 edvantage (disedvantage) of buying 21,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the corburetors were purchased, Troy Engines. Ltd, could use the freed capacity to launch a new product. The segment margin of the new product would be $210,000 per year Given this new assumption, what would be financial advantage (disadvantage) of buying 21000 carburetors from the outside supplier? 4. Given the new ossumption in requirement 3, should the outside supplier's offer be accepted
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