Make or Buy Decision: Ashley Bicycle Parts makes sets of pedals for 10-speed bikes. The company has the following costs per unit for each of the set of pedals: Direct materials $10 Direct labor 4 Variable overhead 1 Supervisors salary 3 Allocated overhead 5 Total cost per unit $23 An outside supplier has offered to sell 10,000 units (set of pedals) to Ashley Bicycles for $200,000. The Supervisors Salary is avoidable; that is, the supervisor will not be needed if the parts are purchased from the outside supplier. The Allocated overhead is unavoidable; that is, the company will have the overhead costs regardless of whether it makes or buys the parts.

Homework Problem #5: Should the company make or buy the parts? Prepare a Make/Buy differential analysis to show if the company should continue to make in-house or buy from the outside supplier.