Exercise 13-3 (Algo) Make or Buy Decision [LO13-3] Troy Engines, Limited, manufactures a variety of engines for use in h

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Exercise 13 3 Algo Make Or Buy Decision Lo13 3 Troy Engines Limited Manufactures A Variety Of Engines For Use In H 1 (95.94 KiB) Viewed 30 times

Exercise 13-3 (Algo) Make or Buy Decision [LO13-3] 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 $37 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Per Unit Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated $ 16 $ 368,000 207,000 92,000 138,000 9 207,000 Total cost $ 44 $ 1,012,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). 23,000 Units Per Year 9 4 6* 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 23,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $230,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 23,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted?