Adams Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Adams produces and sells only 6,400 bikes each year. Due to the low volume of activity, Adams is unable to obtain the economies of scale that larger producers achieve. For example, Adams could buy the handlebars for $35 each; they cost $38 each to make. The following is a detailed breakdown of current production costs. Item Unit Cost Total Unit-level costs $14 $ 89,600 57,600 19,200 76,800 Materials Labor 9 Overhead 3 Allocated facility-level costs 12 Total $38 $243,200 After seeing these figures, Adams's president remarked that it would be foolish for the company to continue to produce the handlebars at $38 each when it can buy them for $35 each.
Adams Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Adams produces and sells only 6,400 bikes each year. Due to the low volume of activity, Adams is unable to obtain the economies of scale that larger producers achieve. For example, Adams could buy the handlebars for $35 each; they cost $38 each to make. The following is a detailed breakdown of current production costs. Item Unit Cost Total Unit-level costs $14 $ 89,600 57,600 19,200 76,800 Materials Labor 9 Overhead 3 Allocated facility-level costs 12 Total $38 $243,200 After seeing these figures, Adams's president remarked that it would be foolish for the company to continue to produce the handlebars at $38 each when it can buy them for $35 each.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Need help with this practice problem
Transcribed Image Text:Adams Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality
racing bikes with limited sales. Adams produces and sells only 6,400 bikes each year. Due to the low volume of activity, Adams is
unable to obtain the economies of scale that larger producers achieve. For example, Adams could buy the handlebars for $35 each;
they cost $38 each to make. The following is a detailed breakdown of current production costs.
Item
Unit Cost
Total
Unit-level costs
Materials
$14
$ 89,600
Labor
57,600
19,200
9
Overhead
Allocated facility-level costs
12
76,800
Total
$38
$243,200
After seeing these figures, Adams's president remarked that it would be foolish for the company to continue to produce the
handlebars at $38 each when it can buy them for $35 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?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education