Using the information in Problem 9-61 above, complete the following.
In Problem 9-61, Babbott Bicycle Company (BBC) is a high-end manufacturer of bicycles. Its products are sold in specialty retail bike stores throughout the United States and Canada. This year's expected production is 10,000 units, but demand in the bicycle market has fluctuated in recent years so that BBC is also predicting that the actual production/sales figure could be anywhere between 7,000 and 15,000 bikes. To control quality, BBC currently makes most of the parts for its bikes, including the rear brake. BBC's accountant reports the following costs for making the 10,000 rear brake assemblies:

An outside vendor has offered to supply up to 20,000 brake assemblies to BBC for $25 each. The following additional information is available:
€¢ BBC's machine lease costs are for the equipment used to make the brakes. If BBC buys all brakes from the outside vendor, it will be able to cancel the lease and avoid this cost. All other fixed costs will not be affected.

Required
Assume that inspection, setup, and materials-handling costs vary directly with the number of batches in which the bikes are produced, and that BBC produces brakes in batches of 1,000 units. Compute the indifference quantity between making the brakes or purchasing the brakes. Compare your solution to that in Problem 9-61 and interpret thedifference.

Transcribed Image Text:

Per-Unit Costs Costs for 10,000 Units $100,000 60,000 30,000 20,000 34,000 60,000 $10.00 Direct manufacturing labor Variable manufacturing overhead (power and utilities) Inspection, setup, materials handling Machine lease Allocated fixed plant administration, taxes, and insurance Total costs 6.00 3.00 2.100 3.40 6.00 $304,000