1-b. Should the outside supplier's offer be accepted?O Yes2-a. Suppose that if the carburetors were purchased, Troy Engines Ltd. could use the freed capacity to launch a new product. Thesegment margin of the new product would be $150,000 per year. Compute the total differential cost for producing and buying theproduct.O NoTotal differential cost in favour of2-b. Should Troy Engines Ltd. accept the offer to buy the carburetors for $44 per unit?O YesO No Troy Engines Ltd. manufactures a variety of engines for use in heavy equipment. The company has always produced all of thenecessary parts for its engines, including all of the carburetors. An outside supplier has offered to produce and sell one type ofcarburetor to Troy Engines Ltd. for a cost of $44 per unit. To evaluate this offer. Troy Engines Ltd. has gathered the followinginformation relating to its own cost of producing the carburetor internally:1. Direct materials cost $23 per unit.2. Troy Engines pays its direct labour employees $20 per hour; each carburetor reguires 30 minutes of labour time.3. Variable manufacturing overhead is allocated at 30% of direct labour cost.4. Total fixed manufacturing cost amounts to $15 per unit, of which 60% is allocated common cost and the remaining 40% coversdepreciation of special equipment and supervisory salaries. The special equipment has no resale value. Supervisory personnel willbe transferred to a different department if the company decides to purchase the carburetor from the outside supplier.5. Yearly production of this type of carburetor is 15,900 units.Requlred:1-a. Assume that the company has no alternative use for the facilities that are now being used to produce the carburetors. Computethe total differential cost per unit for producing and buying the product.Total differential cost (per unit) in favour of1-b. Should the outside supplier's offer be accepted?O YesO No2-a. Suppose that if the carburetors were purchased, Troy Engines Ltd. could use the freed capacity to launch a new product. The

Differential cost is basically used to compare the cost associated with two or more alternatives…

Troy Engines Ltd. manufactures a variety of engines for use in heavy equipment. The company has div 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 $44 per unit. To evaluate this offer, Troy Engines Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: 1. Direct materials cost $23 per unit. 2. Troy Engines pays its direct labour employees $20 per hour; each carburetor requires 30 minutes of labour time. 3. Variable manufacturing overhead is allocated at 30% of direct labour cost. 4. Total fixed manufacturing cost amounts to $15 per unit, of which 60% is allocated common cost and the remaining 40% covers depreciation of special equipment and supervisory salaries. The special equipment has no resale value. Supervisory personnel will be transferred to a different department if the company decides to purchase the carburetor from the outside supplier. 5. Yearly production of this type of carburetor is 15,900 units. Requlred: 1-a. Assume that the company has no alternative use for the facilities that are now being used to produce the carburetors. Compute the total differential cost per unit for producing and buying the product. Total differential cost (per unit) in favour of 1-b. Should the outside supplier's offer be accepted? O Yes O No 2-a. Suppose that if the carburetors were purchased. Troy Engines Ltd. could use the freed capacity to launch a new product. The

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 16E