Cost Analysis for Make-or-Buy Decision: Bikemakers makes bicycles. For years it has made the rear wheel assembly for its bicycles. Recently, Weeler Company offered to sell these rear wheel assemblies to Bikemakers. If Bikemakers makes the assembly, its cost per rear wheel assembly is as follows:

These costs are based on annual production of 20.000 units. Weeler offered to sell the assembly to Bikemakers for $60 each. The total order would amount to 20.000 rear wheel assemblies per year. Bikemakers's management will buy these assemblies instead of making them if Bikemakers can save at least $25,000 per year. If Bikemakers accepts Weeler's offer, annual fixed overhead of $180,000 would be eliminated.

Required: Should Bikemakers make rear wheel assemblies or buy them from Weeler? Prepare a schedule that shows the differential costs per rear wheel assembly.

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Direct materials Direct labor Variable overhead Fixed overhead applied $ 6 30 12 16 $64