Troy Engines, Ltd., manufactures a variety of engines for use inheavy equipment. The company has always produced all of thenecessary parts for its engines, including all of the carburetors.An outside supplier has offered to sell one type of carburetor toTroy Engines, Ltd., for a cost of $32 per unit. To evaluate thisoffer, Troy Engines, Ltd., has gathered the following informationrelating to its own cost of producing the carburetorinternally:

   

		Per Unit		14,200 Units Per Year
Direct materials	$	9	$	127,800
Direct labor		11		156,200
Variable manufacturing overhead		3		42,600
Fixed manufacturing overhead, traceable		6*		85,200
Fixed manufacturing overhead, allocated		13		184,600
Total cost	$	42	$	596,400

*40% supervisory salaries; 60% depreciation of specialequipment (no resale value).

   

Required:

1a.	Assuming that the company has no alternative use for thefacilities 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 2decimals.)

    

      

1b.	Should the outside supplier’s offer be accepted?
	Accept Reject

    

2a.

Suppose that if the carburetors were purchased, Troy Engines,Ltd., could use the freed capacity to launch a new product. Thesegment margin of the new product would be $112,720 per year.Compute the total cost of making and buying the parts.(Round your Fixed manufacturing overhead per unit rate to 2decimals.)

   

      

2b.	Should Troy Engines, Ltd., accept the offer to buy thecarburetors for $32 per unit?
	Reject Accept