?.eu ProctorU pre-Exam Chec: Mal, inghidavle@stur ? Teut l\'Out blackboard.ecu.e

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?.eu ProctorU pre-Exam Chec: Mal, inghidavle@stur ? Teut l'Out blackboard.ecu.edu/weba jsp? id 500873 18 course id- 445464 18new attempt-18content.id-10 $12,000 in favor of replacing the machine QUESTION 17 Lemond Bicycle Company currently produces handlebars used in manufacturing it's high-end racing bkes Lemond produces and selb 11,000 bikes per year A larger company has offered to make the handebars for Lemond (same quality) for $41 each Lemond's cost accountant puled together the following current production costs for handlebars Item Unit-level costs Unit cost Total $220,000 154,000 44,000 66,000 $440,000 $20 Materials Skilled labor Overheacd Allocated facility-level costs 6 $44 Based on these figures, should Lemond outsource its handlebar needs? O Yes, they'd save $3 per handlebar No, they'd be $3 per handlebar worse of Yes, they'd save $6 per handlebar No, they'd pay 56 more per handisbar than necessary Ciok Save and Submit to save and submit. Cliek Save All Anwers to saue all annwers Save All Answers

Explanation / Answer

While making a make or buy decision we should not consider the fixed costs which are allocated.

Therefore, the costs which we consider while considering the make option would be Material, Labor and Overhead. When we add those costs we get a per unit cost of $38 but the outside supplier is willing to supply the unit at a unit price of $41 which is $3 costlier than we incur on own manufacturing.

Therefore, Option B is correct answer. " No the company shouldn't outsource its handlebar needs as they'd be $3 per handlebar worse off "

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