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Nama : Florentina Priscealla

Exercise 14-3
Given

Outside carburetor supplier offer$ 35 per unit

Troy Engines, Ltd.'s own costs in producing


carburetors:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, traceable*
Fixed manufacturing overhead, allocated
Total cost

Per unit
14.00
10.00
3.00
6.00

15,000 Units
per year
210,000.00
150,000.00
45,000.00
90,000.00

9.00

135,000.00

42.00

630,000.00

*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value)
Required
1. Assuming that the company has no alternative use for the facilities that are now being used to
produce the carburetors, should the outside supplier's offer be accepted? Show computations.
Total Relevant Costs - 15,000 units
Make
Buy
Direct materials (15,000 units x $14 per unit)
210,000.00
Direct labor (15,000 units x $10 per unit)
150,000.00
Variable manufacturing overhead (15,000 units x 45,000.00
Supervisor's salary (15,000 units x [1/3 * $ 6 per 30,000.00
Depreciation of special equipment (not relevant

Fixed manufacturing overhead, allocated (not re

Outside purchase price (15,000 units x $ 35 per

Total cost
Difference in favor of continuing

435,000.00

525,000.00
525,000.00

90,000.00

Based on the above computations, it is not advisable to accept the outside offer since the company
will be able to save $ 90,000 in making their own carburetors instead of buying from the outside supp

The additional factor in deciding to continue making their own carburetors is that the facilities will not
have any alternative use if producing carburetors were to be discontinued by the company.

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 $150,000 per year. Should
Troy Enginees, Ltd., accept the offer to buy the carburetors for $ 35 per unit?

Total
annual cost
cost - segment margin forgone on
Opportunity
a potential new product line
Total
cost in favor of buying
Difference
from outside supplier

Make
435,000.00

Buy
525,000.00

150,000.00

585,000.00

525,000.00

(60,000.00)

Based on the above computations, it is advisable to accept the outside offer since the company
will lose $ 60,000 in savings if they free the capacity of making carburetors to give way to the product
of the new product that will provide a segment margin of $150,000.

Exercise 14-4
Given
Normal selling price of gold bracelet:
Unit product cost (breakdown below):
Direct Materials
Direct Labor
Manufacturing overhead *
Unit product cost

189.95
149.00
84.00
45.00
20.00
149.00

* $ 4 of manufacturing overhead is variable with respect to the number of bracelets produced

Special order details:


20 handcrafted gold bracelets
2.00 additional material cost per bracelet for the special filigree
250.00 acquisition cost of a special tool (will not be used after the special order is comp

The order will not affect company's regular sales; the order could be fulfilled using the com
existing capacity without affecting any other order.

Required:
What effect would accepting this order have on the company's net operating income if a special price
per bracelet is offered for this order? Should the special order be accepted at this price?

Per Unit
Incremental revenue
Less incremental costs:
Variable costs:
Direct materials
Direct Labor
Manufacturing overhead *
Special modifications
Total variable cost
Fixed cost:
Acquisition of special tool
TOTAL INCREMENTAL COST
Incremental net operating income

Total 20
bracelets

169.95

3,399.00

84.00
45.00
4.00

1,680.00
900.00
80.00

2.00

40.00

135.00

2,700.00
250.00
2,950.00
449.00

no resale value)

now being used to


w computations.

er since the company


g from the outside supplier.

hat the facilities will not


he company.

se the freed capacity to


,000 per year. Should

nce the company


give way to the production

celets produced

he special order is completed)

e fulfilled using the company's

ncome if a special price of $169.95


his price?