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Troy Engines, Limited, 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, Limited, for a cost of $36 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally. Direct materials Direct labor Variable manufacturing overhead Per Unit 5:33 11 4 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 5.43 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 6⁰ 20,000 Units Per Year 9 $ 260,000 220,000 80,000 120,000 180,000 $ 860,000 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 supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines. Limited, 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 assumpti

Troy Engines, Limited, 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, Limited, for a cost of $36 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally. Direct materials Direct labor Variable manufacturing overhead Per Unit 5:33 11 4 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 5.43 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 6⁰ 20,000 Units Per Year 9 $ 260,000 220,000 80,000 120,000 180,000 $ 860,000 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 supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines. Limited, 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 assumpti

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...
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Troy Engines, Limited, 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, Limited, for a cost of $36 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally. Per 20,000 Units Per Unit Year $ 13 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $.43 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 4 6⁰ Complete this question by entering your answers in the tabs below. Required 11 Required 21 Required 3 Required 4 9 $ 260,000 220,000 80,000 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 supplier's offer be accepted? 120,000 180,000 $ 860,000 3. Suppose that if the carburetors were purchased. Troy Engines. Limited, 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 supplier's offer be accepted?
Transcribed Image Text:Troy Engines, Limited, 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, Limited, for a cost of $36 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally. Per 20,000 Units Per Unit Year $ 13 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $.43 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 4 6⁰ Complete this question by entering your answers in the tabs below. Required 11 Required 21 Required 3 Required 4 9 $ 260,000 220,000 80,000 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 supplier's offer be accepted? 120,000 180,000 $ 860,000 3. Suppose that if the carburetors were purchased. Troy Engines. Limited, 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 supplier's offer be accepted?
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