Franklin Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Franklin produces and sells only 7,700 bikes each year. Due to the low volume of activity, Franklin is unable to obtain the economies of scale that larger producers achieve. For example, Franklin could buy the handlebars for $39 each; they cost $42 each to make. The following is a detailed breakdown of current production costs:

After seeing these figures, Franklins president remarked that it would be foolish for the company to continue to produce the handlebars at $42 each when it can buy them for $39 each.

Calculate the total relevant cost. Do you agree with the president's conclusion?

Unit Cost Total Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total $18 9 2 $138, 600 69, 300 15,400 100, 100 $323, 400 13 $42 Per Unit Total Total relevant cost Do you agree with the president's conclusion