Adams Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Adams produces and sells only 7,500 bikes each year. Due to the low volume of activity, Adams is unable to obtain the economies of scale that larger producers achieve. For example, Adams could buy the handlebars for $40 each; they cost $43 each to make. The following is a detailed breakdown of current production costs:

After seeing these figures, Adamss 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 presidents conclusion?

Unit Cost Total Item Unit-level costs Materials Labor Overhead $17 12 $127,500 90,000 22,500 82,500 $322,500 Allocated facility-level costs Total 11 $43 Per Unit Total Total relevant cost Do you agree with the president's conclusion