Rider Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Rider produces and sells only 5,000 bikes each year. Due to the low volume of activity, Rider is unable to obtain the economies of scale that larger producers achieve. For example, Rider could buy the handlebars for \($30\) each; they cost \($34\) each to make. The following is a detailed breakdown of current production costs.

After seeing these figures, Rider’s president remarked that it would be foolish for the company to continue to produce the handlebars at \($34\) each when it can buy them for \($30\) each.

Required:
Do you agree with the president’s conclusion? Support your answer with appropriate computations.

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Item Unit-level costs Materials. Labor Overhead Allocated facility-level costs Total Unit Cost Total $14 $ 70,000 11 55,000 4 20,000 5 25,000 $34 $170,000