Question

Citation Machine Google Docs Sell Books for Cas. n Month-One W. Watch Downuin Other booknaks > Troy Engines, Lid, manufactures a variely of engines for use in heavy equipment The company has always produced all of the necessary parts for ts engnes, including al of the carburelors 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 folowing information relating to tsa own cost of producing the carburetor intemaly 15 000 Unit Per Year S 210,000 150.000 Per Unit $14 10 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead traceable Fixed manufacturing overhead, allocated Total cost 3 45000 90000 135 000 6 9 $ 630.000 $42 "One-thied supervisory salaries, two-thirds depreciation of special equipment (no resale value) Required: 1a Assuming that the company has no aternative use for the facisties that are now being used to produce the carburetors, compute the total cost of making and buying the parts Make Buy Total relevant cost (15.000 units) 1b. Should the outside supplier's offer be accepted? Accept Reject 2a Suppose that f the carburetors were purchased Troy Engines, Ltd Compute the total cost of making and buying the parts could use the treed capacty to launch a riew product The segment margin of the new product would be $150,000 per yea Buy Make Total relevant cost (15.000 units)

Answer 1

1
	Per unit		Total 15000 units
	Make	Buy	Make	Buy
Direct materials	14		210000
Direct labor	10		150000
Variable manufacturing overhead	3		45000
Fixed manufacturing overhead traceable	2		30000
Purchase cost		35		525000
Total			435000	525000
	Make	Buy
Total relevant cost(15000 units)	435000	525000
1b
Reject the offer
2a
	Make	Buy
Total cost	435000	525000
Opportunity cost	150000
Total relevant cost(15000 units)	585000	525000