Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the parts for its engines, including the carburetors. An outside supplier 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, summarized the cost of producing the carburetor internally as follows: Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Por Unit $ 17 11 3 3. 6 $:40 20,000 Unita Per Year $340,000 220,000 60,000 60,000 120,000 $ 800,000 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product with a segment margin of $200,000 per year. Given 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?
Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the parts for its engines, including the carburetors. An outside supplier 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, summarized the cost of producing the carburetor internally as follows: Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Por Unit $ 17 11 3 3. 6 $:40 20,000 Unita Per Year $340,000 220,000 60,000 60,000 120,000 $ 800,000 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product with a segment margin of $200,000 per year. Given 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the
parts for its engines, including the carburetors. An outside supplier 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, summarized the cost of producing the carburetor internally as
follows:
Por
Unit
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
Total cost
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).
Required:
1. If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial
advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?
2. Should the outside supplier's offer be accepted?
$17
11
3
3.
6
$ 40
20,000 Unita
Per Year
$ 340,000
220,000
60,000
60,000
120,000
$ 800,000
3. Suppose if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product with a
segment margin of $200,000 per year. Given 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?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Required 4
If the company has no alternative use for the facilities being used to produce the carburetors, what would be the financial.
advantage (disadvantage) of buying 20,000 carburetors from the outside supplier?
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Step 1: Meaning of differential analysis and decision rule :
VIEWStep 2: (1) Calculation of financial advantage / (disadvantage) of buying from outside supplier :
VIEWStep 3: (2) Should the outside supplier's offer be accepted :
VIEWStep 4: (3) Calculation of financial advantage / (disadvantage) of buying from outside supplier :
VIEWStep 5: (4) On the given new assumption, should the outside supplier's offer be accepted :
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