Let\'s Roll, Inc. currently manufactures the wheels that it uses for its in-line

Question

Let's Roll, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:

Wheeling Company has offered to provide Let's Roll with all of its annual wheel needs for $2.70 per wheel. If Let's Roll accepts this offer, 75% of the fixed overhead above could be totally eliminated. Also, Let's Roll would be able to rent out the freed up space and could generate $71,000 of income annually.

Let's Roll, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:

Explanation / Answer

a) Total relevant cost of making

Total relvant cost of buying

should buy since there is cost saving

Direct materials $173,000 Direct labor    44,000 Variable overhead    63,000 total relevenat cost $280,000

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