Rooney Bicycle Manufacturing Company currently produces the handlebars used in m
ID: 2437639 • Letter: R
Question
Rooney Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Rooney produces and sells only 7,700 bikes each year. Due to the low volume of activity, Rooney is unable to obtain the economies of scale that larger producers achieve. For example, Rooney could buy the handlebars for $33 each; they cost $36 each to make. The following is a detailed breakdown of current production costs Item Unit-1level costs Unit Cost Total Materials Labor Overhead $17 10 $130,900 77,000 23,100 46,200 $277,200 Allocated facility-level costs Total $36 After seeing these figures, Rooney's president remarked that it would be foolish for the company to continue to produce the handlebars at $36 each when it can buy them for $33 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?Explanation / Answer
Total relevant cost: Per unit 30 =17+10+3 Total 231000 =7700*30 No, we do not agree with president's conclusion as relevant cost to make is less than cost to buy
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