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 6,900 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 $33 each; they cost $36 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Unit Cost Total Materials $16 $110,400 Labor 8 55,200 Overhead 2 13,800 Allocated facility-level costs Total 10 69,000 $36 $248,400 After seeing these figures, Munoz'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?
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 6,900 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 $33 each; they cost $36 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Unit Cost Total Materials $16 $110,400 Labor 8 55,200 Overhead 2 13,800 Allocated facility-level costs Total 10 69,000 $36 $248,400 After seeing these figures, Munoz'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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 6,900 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 $33 each;
they cost $36 each to make. The following is a detailed breakdown of current production costs.
Item
Unit-level costs
Unit Cost
Total
Materials
$16
$110,400
Labor
8
55,200
Overhead
2
13,800
Allocated facility-level costs
Total
10
69,000
$36
$248,400
After seeing these figures, Munoz'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?
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