Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at $100\%$ capacity, and variable manufacturing overhead is charged to production at the rate of $60\%$ of direct labor cost. The direct materials cost and the direct labor cost per unit to make the bicycle seats are $$8\mathrm{.}00$ and $$9\mathrm{.}00,$ respectively. Normal production is $50,000$ bicycles per year.

A supplier offers to make the bicycle seats at a price of $$21$ each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $$30,000$ of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products.

Tasks:

Prepare a detailed analysis with appropriate computations for the decision to make or buy the bicycle seats. Use the techniques you learned this week.

Explain whether Kuhn Bicycle Company should buy the seats from the outside supplier.

Justify your answer with the details and numbers you computed in the first task, above