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Exercise 12-3 Make or Buy Decision (LO12-3) Year 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 $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally 14,000 Units Per Per Unit Direct materials $14 $196,000 Direct labor 10 140,000 Variable manufacturing overhead 4 56,000 Fixed manufacturing overhead, traceable 84,000 Fixed manufacturing overhead, allocated 9 126.000 Total cost $ 43 602,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value) Required: 1. 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 14,000 carburetors from the outside supplier? 3. 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 $140,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 14,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplie's offer be accepted? 6* Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required Required 4 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 14,000 carburetors from the outside supplier? Financial (disadvantage Per Required 2 > Financial (disadvantage) Financial advantage -ceptedr Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Should the outside supplier's offer be accepted? Yes INo Required 1 Required 2 Required) Required 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 $140,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 14,000 carburetors from the outside supplier? Financial advantage Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Yes No

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