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Vernon Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Vernon produces and sells only 6.600 bikes each year. Due to the low volume of activity, Vernon is unable to obtain the economies of scale that larger producers achieve. For example, Vernon could buy the handlebars for $37 each; they cost $40 each to make. The following is a detailed breakdown of current production costs. Iten Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $ 16 10 Per Unit 3 Total relevant cost Do you agree with the president's conclusion? 11 5.40 After seeing these figures, Vernon's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? Total $ 105,600 66,000 19,800 72,600 $ 264,000 Total

Vernon Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Vernon produces and sells only 6.600 bikes each year. Due to the low volume of activity, Vernon is unable to obtain the economies of scale that larger producers achieve. For example, Vernon could buy the handlebars for $37 each; they cost $40 each to make. The following is a detailed breakdown of current production costs. Iten Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $ 16 10 Per Unit 3 Total relevant cost Do you agree with the president's conclusion? 11 5.40 After seeing these figures, Vernon's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? Total $ 105,600 66,000 19,800 72,600 $ 264,000 Total

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vernon Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Vernon produces and sells only 6,600 bikes each year. Due to the low volume of activity, Vernon is unable to obtain the economies of scale that larger producers achieve. For example, Vernon could buy the handlebars for $37 each; they cost $40 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 Per Unit Unit Cost $ 16 10 Total relevant cost Do you agree with the president's conclusion? 3 11 $ 40 After seeing these figures, Vernon's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? Total $ 105,600 66,000 19,800 72,600 $ 264,000 Total
Transcribed Image Text:Vernon Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Vernon produces and sells only 6,600 bikes each year. Due to the low volume of activity, Vernon is unable to obtain the economies of scale that larger producers achieve. For example, Vernon could buy the handlebars for $37 each; they cost $40 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 Per Unit Unit Cost $ 16 10 Total relevant cost Do you agree with the president's conclusion? 3 11 $ 40 After seeing these figures, Vernon's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? Total $ 105,600 66,000 19,800 72,600 $ 264,000 Total
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