Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has…

 
   

Need your ASSIGNMENT done? Use our paper writing service to score better and meet your deadlines.  

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 $45 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 15,200 Units
Per Year   Direct materials $ 13    $ 197,600     Direct labor 15    228,000     Variable manufacturing overhead 1    15,200   Fixed manufacturing overhead, traceable 9*   136,800     Fixed manufacturing overhead, allocated 17    258,400   Total cost $ 55    $ 836,000 *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, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

    

       1b. Should the outside supplier’s offer be accepted?     Accept Reject

     2a.

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 $202,480 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.) 2b.

Should Troy Engines, Ltd., accept the offer to buy the carburetors for $45 per unit?     Accept Reject