Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the nec
essary 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 $31 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 15,000 UnitsPer Year Direct materials $ 9 $ 135,000 Direct labor 11 165,000 Variable manufacturing overhead 2 30,000 Fixed manufacturing overhead, traceable 6* 90,000 Fixed manufacturing overhead, allocated 13 195,000 Total cost $ 41 $ 615,000*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? AcceptReject 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 $105,000 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 $31 per unit? AcceptReject
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