Question

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 $31 Per Unit. To Evaluate This Offer, Troy Engines, Ltd., ...

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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 $31 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 15,000 Units
Per Year
Direct materials $ 9 $ 135,000
Direct labor 11 165,000
Variable manufacturing overhead 2 30,000
Fixed manufacturing overhead, traceable 6* 90,000
Fixed manufacturing overhead, allocated 13 195,000
Total cost $ 41 $ 615,000
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).


Required:
1a.
Assuming that the company has no alternative use for the facilities 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 2 decimals.)

Answer 1

Total relevant cost for making the parts =$387,400

Total relevant cost for buying the parts = $465,000

Step-by-step explanation:

The computation of total cost of making and buying the parts is shown below:-

Make Buy

Cost of purchasing 0 $465,000

(15,000 × $31)

Direct material $135,000 0

Direct labor $165,000 0

Variable manufacturing

overhead $30,000 0

Fixed manufacturing

overhead $57,240 0

Total relevant cost $387,400 $465,000