Oriole Bicycle Company manufactures its own seats for its bicycles. The company is currently operating at 100% capacity. Variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8 and $9, respectively. Normal production is 55,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $33,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the bicycle seats. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)
Oriole Bicycle Company manufactures its own seats for its bicycles. The company is currently operating at 100% capacity. Variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8 and $9, respectively. Normal production is 55,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $33,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the bicycle seats. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Oriole Bicycle Company manufactures its own seats for its bicycles. The company is currently operating at 100%
capacity. Variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct
materials and direct labor cost per unit to make the bicycle seats are $8 and $9, respectively. Normal production is
55,000 bicycles per year.
A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable
manufacturing costs will be eliminated, but the $33,000 of fixed manufacturing overhead currently being charged to
the bicycle seats will have to be absorbed by other products.
(a)
Prepare the incremental analysis for the decision to make or buy the bicycle seats. (Enter negative amounts
using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave
any field blank. Enter 0 for the amounts.)
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