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Troy Engines, Ltd., manufactures a varlety 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: 20,000 Units Unit per Year $ 17 $ 340,000 220,000 60,000 60,e0e 120,000 $ 40 $ 800,000 Per Direct materials Direct labor 11 Variable manufacturing overhead 3 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 3" 6 Total cost *One-third supervisory salarles; two-thirds depreclation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facillitles that are now belng used to produce the carburetors, what would be the financial advantage (disadvantage) of buylng 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, Ltd., 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 financlal advantage (disadvantage) of buylng 20,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?

Troy Engines, Ltd., manufactures a varlety 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: 20,000 Units Unit per Year $ 17 $ 340,000 220,000 60,000 60,e0e 120,000 $ 40 $ 800,000 Per Direct materials Direct labor 11 Variable manufacturing overhead 3 Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 3" 6 Total cost *One-third supervisory salarles; two-thirds depreclation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facillitles that are now belng used to produce the carburetors, what would be the financial advantage (disadvantage) of buylng 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, Ltd., 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 financlal advantage (disadvantage) of buylng 20,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?

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, Ltd., manufactures a varlety 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: 20, 000 Units Per Unit per Year $ 17 $ 340, 000 Direct materials Direct labor variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 11 220,000 60, 000 60,000 120,000 3 3* Total cost $ 40 $ 800, 000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Requlred: 1. Assuming the company has no alternative use for the facilities that are now belng used to produce the carburetors, what would be the financial advantage (disadvantage) of buylng 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, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $200,000 per year. Glven 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, Ltd., manufactures a varlety 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: 20, 000 Units Per Unit per Year $ 17 $ 340, 000 Direct materials Direct labor variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated 11 220,000 60, 000 60,000 120,000 3 3* Total cost $ 40 $ 800, 000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Requlred: 1. Assuming the company has no alternative use for the facilities that are now belng used to produce the carburetors, what would be the financial advantage (disadvantage) of buylng 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, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $200,000 per year. Glven 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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