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: 19,000 Unita Per Year Per Unit $ 16 $304, 000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable rixed manufacturing overhead, allocated 190,000 38,000 10 2 9. 171,000 220,000 $ 49 $ 931,000 12 Total cost "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 advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $190,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? in reguirement 3. should the outside supplier's offer be accepted?
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: 19,000 Unita Per Year Per Unit $ 16 $304, 000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable rixed manufacturing overhead, allocated 190,000 38,000 10 2 9. 171,000 220,000 $ 49 $ 931,000 12 Total cost "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 advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $190,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 19,000 carburetors from the outside supplier? in reguirement 3. should the outside supplier's offer be accepted?
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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Transcribed Image Text: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:
19,000
Units
Per
Unit
Per
Year
৪16 304, 000
Direct materials
Direct labor
10
190,000
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
38,000
171,000
228,000
2
12
Total cont
$ 49 ও 931, 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 advantage (disadvantage) of buying 19,000 carburetors from the outside supplier?
2. Should the outside supplier's offer be accepted?
3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The
segment margin of the new product would be $190,000 per year. Given this new assumption, what would be the financial advantage
(disadvantage) of buying 19,000 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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