Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. Thecompany has always produced all of the necessary parts for its engines, including all ofthe carburetors. An outside supplier has offered to sell one type of carburetor to TroyEngines, Ltd., for a cost of $19 per unit. To evaluate this offer, Troy Engines, Ltd., hasgathered the following information relating to its own cost of producing the carburetorinternally:Direct materialsDirect laborVariable manufacturing overheadFixed manufacturing overhead, traceableFixed manufacturing overhead, allocatedTotal cost15,100PerUnitsUnitPer Year$ 5 $ 75,5007105,700230,2006" 90,600135,900437,900$29 $*40% supervisory salaries; 60% depreciation of special equipment (no resale value).Required:1a. Assuming that the company has no alternative use for the facilities that are nowbeing used to produce the carburetors, compute the total cost of making and buyingthe parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

To compute the total cost of making and buying the parts, we need to consider both the cost of…

Answered: Troy Engines, Ltd., manufactures a…

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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Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
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 $34 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 Unit 19,000 Units Per Year Direct materials $ 16 $ 304,000 Direct labor 10 190,000 Variable manufacturing overhead 2 38,000 Fixed manufacturing overhead, traceable 9* 171,000 Fixed manufacturing overhead, allocated 12 228,000 Total cost $ 49 $ 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…
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 $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 15,600 UnitsPer Year Direct materials $ 9 $ 140,400 Direct labor 11 171,600 Variable manufacturing overhead 3 46,800 Fixed manufacturing overhead, traceable 9* 140,400 Fixed manufacturing overhead, allocated 13 202,800 Total cost $ 45 $ 702,000 *40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: 1a. Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors,…
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 $35 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 Unit 22,000 Units Per Year Direct materials $ 15 $ 330,000 Direct labor 8 176,000 Variable manufacturing overhead 3 66,000 Fixed manufacturing overhead, traceable 3*Footnote asterisk 66,000 Fixed manufacturing overhead, allocated 6 132,000 Total cost $ 35 $ 770,000 *Footnote asteriskOne-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what…
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 $40 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per unit 15000 units per year Direct materials 15$ 225000$ Direct labor 11$ 165000$ Variable manufacturing overhead 2$ 30000$ Fixed manufacturing overhead , traceable 9$ 135000$ Fixed manufacturing overhead , allocated 12$ 180000$ Total cost 49$ 735000$ *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…
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 $35 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 Unit 14,000 Units Per Year Direct materials $ 14 $ 196,000 Direct labor 10 140,000 Variable manufacturing overhead 4 56,000 Fixed manufacturing overhead, traceable 6* 84,000 Fixed manufacturing overhead, allocated 9 126,000 Total cost $ 43 $ 602,000 *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…
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 $33 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 18,000 UnitsPer Year Direct materials $ 15 $ 270,000 Direct labor 9 162,000 Variable manufacturing overhead 4 72,000 Fixed manufacturing overhead, traceable 6 * 108,000 Fixed manufacturing overhead, allocated 9 162,000 Total cost $ 43 $ 774,000 *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…
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 $32 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 17,000 Unitsper Year Direct materials $ 14 $ 238,000 Direct labor 8 136,000 Variable manufacturing overhead 3 51,000 Fixed manufacturing overhead, traceable 3 * 51,000 Fixed manufacturing overhead, allocated 6 102,000 Total cost $ 34 $ 578,000 *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…
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: Per Unit 20,000 Units Per Year Direct materials $ 17 $ 340,000 Direct labor 10 200,000 Variable manufacturing overhead 2 40,000 Fixed manufacturing overhead, traceable 9 * 180,000 Fixed manufacturing overhead, allocated 12 240,000 Total cost $ 50 $ 1,000,000 *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…
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 produce and sell one type of carburetor to Troy Engines Ltd. for a cost of $91.0 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: PerUnit 36,000 Unitsper Year Direct materials $ 21 $ 756,000 Direct labour 24 864,000 Variable manufacturing overhead 17 612,000 Fixed manufacturing overhead, traceable 27.0 * 972,000 Fixed manufacturing overhead, allocated 23 828,000 Total cost $ 112.0 $ 4,032,000 * One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Suppose that if the carburetors were purchased,…
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 carburettors. An outside supplier has offered to produce and sell one type of carburettor to Troy Engines for a cost of £34 per unit. To evaluate this offer, Troy Engines has gathered the following information relating to its own cost of producing the carburettor internally: Per Unit 16,000 units per year Direct materials £14 £224,000 Direct labour 10 160,000 Variable manufacturing overhead 3 48,000 Fixed manufacturing overhead, traceable 6 * 96,000 Fixed manufacturing overhead, allocated 9 144,000 Total cost 42 672,000 *One-third supervisory salaries, who are directly associated with the manufacturing of the engine; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming that the company has no alternative use…

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