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 $44 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 15,400 Units
- per year
- Direct materials $13 $200,200
- Direct labor 15 231,000
- Variable manufacturing overhead 3 46,200
- Fixed manufacturing overhead, traceable 6* 92,400
- Fixed manufacturing overhead, allocated 17 261,800
- Total cost
$54
$831,600
*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).
Requirement 1:
(a)What will be the total relevant cost of 15,400 units, if they are manufactured internally? (Omit the "$" sign in your response.)
Total relevant cost $
(b) Should the outside supplier's offer be accepted? Yes or No
Requirement 2:
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 $65,000 per year.
(a)What will be the total relevant cost of 15,400 units, if they are manufactured internally? (Omit the "$" sign in your response.)
Total relevant cost $
(b) Should Troy Engines, Ltd., accept the offer to buy the carburetors for $44 per unit? Yes or No