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accounting questions 4,5

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					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 $23 per unit. To
evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of
producing the carburetor internally:


                                                                    15,100 Units
                                                        Per Unit      per year
 Direct materials                                          $5          $75,500
 Direct labor                                                7         105,700
 Variable manufacturing overhead                             3          45,300
 Fixed manufacturing overhead, traceable                    9*         135,900
 Fixed manufacturing overhead, allocated                     9         135,900
 Total cost                                               $33        $498,300



*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).




 4.


Requirement 1:
(a) What will be the total relevant cost of 15,100 units, if they are manufactured internally? (Omit the "$"
    sign in your response.)


    Total relevant cost                         $


(b) Should the outside supplier's offer be accepted?

     (Click to select)
                            Accept or Reject?




 5.


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 $63,000 per year.
(a) What will be the total relevant cost of 15,100 units, if they are manufactured internally? (Omit the "$"
    sign in your response.)


    Total relevant cost                         $


(b) Should Troy Engines, Ltd., accept the offer to buy the carburetors for $23 per unit?

     (Click to select)
                            Accept or Reject?

				
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