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1 pmns eBook Refe ren ces Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of...

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1
pmns eBook Refe ren ces 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 $34 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its
own cost of producing the carburetor internally: 19,000 Units Per Per Unit Year
Direct materials $ 16 $ 304,000
Direct labor 10 190,000
Variable manufacturing overhead 2 38,000
Fixed manufacturing overhead, traceable 9* 171,000
Fixed manufacturing overhead, allocated 12 228,000 Total cost in 49 $ 931,000 *One—third supervisory salaries; two—thirds depreciation of special equipment (no resale value). 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 19,000 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 $190,000 per year. Given this new assumption, what would be financial advantage
(disadvantage) of buying 19,000 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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Required 1 Required 2 Required 3 Required 4 ESuppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. Thei
gsegment margin of the new product would be $190,000 per year. Given this new assumption, what would be the financial '
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Required 1 Required 2 Required 3 H Required4 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 19,000 carburetors from the outside supplier?

Top Answer

Part 1 Relevant costs for making a carburetor Cost Direct material $304 ,000 Direct Labor $190 ,000 Variable Manufacturing... View the full answer

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