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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
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 $ per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally:
Per Unit Units Per Year
Direct materials $ $
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, allocated
Total cost $ $
Onethird supervisory salaries; twothirds depreciation of special equipment no resale value
Required:
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 carburetors from the outside supplier?
Should the outside suppliers offer be accepted?
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 $ per year. Given this new assumption, what would be the financial advantage disadvantage of buying carburetors from the outside supplier?
Given the new assumption in requirement should the outside suppliers offer be accepted?
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