Stuart Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Stuart produces and sells only 6,600 bikes each year. Due to the low volume of activity, Stuart is unable to obtain the economies of scale that larger producers achieve. For example, Stuart could buy the handlebars for $35 each; they cast $38 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $15 10 3 10 $38 - Total $ 99,000 66,000 19, 800 66,000 $250, 800 After seeing these figures, Stuart'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.
Stuart Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Stuart produces and sells only 6,600 bikes each year. Due to the low volume of activity, Stuart is unable to obtain the economies of scale that larger producers achieve. For example, Stuart could buy the handlebars for $35 each; they cast $38 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $15 10 3 10 $38 - Total $ 99,000 66,000 19, 800 66,000 $250, 800 After seeing these figures, Stuart'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
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Transcribed Image Text:Stuart Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality
racing bikes with limited sales. Stuart produces and sells only 6,600 bikes each year. Due to the low volume of activity, Stuart is unable
to obtain the economies of scale that larger producers achieve. For example, Stuart could buy the handlebars for $35 each; they cast
$38 each to make. The following is a detailed breakdown of current production costs.
Item
Unit-level costs
Materials
Labor
Overhead
Allocated facility-level costs
Total
Unit Cost Total
After seeing these figures, Stuart'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.
$15 $ 99,000
10
66,000
3
19,800
10
66,000
$38
$250, 800
Required
Calculate the total relevant cost. Do you agree with the president's conclusion?
Per Unit
Total relevant cost
Do you agree with the president's conclusion?
Total
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