Exercise 610A Outsourcing decision LO 63 Baird Bicycle Manuf

Exercise 6-10A Outsourcing decision LO 6-3 Baird Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Baird produces and sells only 6,500 bikes each year. Due to the low volume of activity, Baird is unable to obtain the economies of scale that larger producers achieve. For example, Baird could buy the handlebars for $31 each; they cost $34 each to make. The following is a detailed breakdown of current production costs Item Unit-level costs Unit Cost Total $97,500 52,000 19,500 52,000 $221,000 $15 Materials Labor Overhead Allocated facility-level costs Total $34 After seeing these figures, Baird\'s president remarked that it would be foolish for the company to continue to produce the handlebars at $34 each when it can buy them for $31 each Required Calculate the total relevant cost. Do you agree with the president\'s conclusion? Per Unit Total Total relevant cost Do you agree with the president\'s conclusion?

Solution

Material 15 Relevent Labor 8 Relevent Overhead 3 Relevent Allcoated Facility level Cost Not Relevent Total Relevent Cost $    26.00 Per Unit Total Total Relevent Cost $    26.00 169000 Do you agree with the president’s conclusion No,Because cost to Make is cheap