Zachary Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Zachary produces and sells only 7,000 bikes each year. Due to the low volume of activity, Zachary is unable to obtain the economies of scale that larger producers achieve. For example, Zachary could buy the handlebars for $40 each; they cost $43 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Unit Cost Total Materials Labor $ 18 11 $ 126,000 77,000 Overhead 2 14,000 Allocated facility-level costs Total 12 84,000 $ 43 $ 301,000 After seeing these figures, Zachary's president remarked that it would be foolish for the company to continue to produce the handlebars at $43 each when it can buy them for $40 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?
Zachary Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Zachary produces and sells only 7,000 bikes each year. Due to the low volume of activity, Zachary is unable to obtain the economies of scale that larger producers achieve. For example, Zachary could buy the handlebars for $40 each; they cost $43 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Unit Cost Total Materials Labor $ 18 11 $ 126,000 77,000 Overhead 2 14,000 Allocated facility-level costs Total 12 84,000 $ 43 $ 301,000 After seeing these figures, Zachary's president remarked that it would be foolish for the company to continue to produce the handlebars at $43 each when it can buy them for $40 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:Zachary Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality
racing bikes with limited sales. Zachary produces and sells only 7,000 bikes each year. Due to the low volume of activity, Zachary is
unable to obtain the economies of scale that larger producers achieve. For example, Zachary could buy the handlebars for $40 each;
they cost $43 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
$ 18
11
$ 126,000
77,000
2
12
14,000
84,000
$ 43
$ 301,000
After seeing these figures, Zachary's president remarked that it would be foolish for the company to continue to produce the
handlebars at $43 each when it can buy them for $40 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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