chapter 6 home work

Exercise 6-10A Outsourcing decision LO 6-3 Munoz Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Munoz produces and sells only 7,900 bikes each year. Due to the low volume of activity, Munoz is unable to obtain the economies of scale that larger producers achieve. For example, Munoz could buy the handlebars for $42 each: they cost $45 each to make. The following is a detailed breakdown of current production costs: Unit Cost Total ok Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total $17 11 2 15 $134,300 86,900 15,800 118,500 $355,500 $45 int After seeing these figures, Munoz's president remarked that it would be foolish for the company to continue to produce the handlebars at $45 each when it can buy them for $42 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? rences Total Per Unit Total relevant cost 17 Do you agree with the president's conclusion? No