Question 1 The Toyota Bicycle Company Produces Bicycles. This Year's Expected Production Is 20,000 Units. Currently Ace Makes The Chains For Its Bicycles. Ace's Accountant Reports The Following Costs For Making The 20,000 Bicycle Chains. Description Costs Per Units Costs For 20,000 Units Direct Materials $4.00 $ 80,000 Direct Labor $2.00 $ 40,000 $1.50

Question 1 The Toyota Bicycle Company produces bicycles. This year's expected production is 20,000 units. Currently Ace makes the chains for its bicycles. Ace's accountant reports the following costs for making the 20,000 bicycle chains. Description Costs per units Costs for 20,000 units Direct materials $4.00 $ 80,000 Direct labor $2.00 $ 40,000 Variable manufacturing overhead $1.50 $30,000 Inspection, setup, material handling $ 4,000 Machine rent Allocated fixed costs of taxes and insurance Total $3,000 $ 30,000 $187,000 Ace has received an offer from an outside vendor to supply any number of chains Ace requires at $8.40 per chain. The following additional information is available: REQUIRED: Inspection, setup, and materials handling costs vary with the number of batches in which the chains are produced. Ace produces chains in batch sizes of 1,000 units. Ace estimates that it will produce the 20,000 units in ten batches. Ace rents the machine used to make the chains. If Ace buys all its chains from the outside vendor, it does not need to pay rent on this machine. Assume that if the chains are purchased outside, the facilities where the chains are currently made will be used to upgrade the bicycles by adding mud flaps and reflector bars. As a consequence, the selling price on bicycles will be raised by $20. The variable per unit cost of the upgrade would be $17, and additional totaling costs of $32,000 would be incurred. What is per unit cost if Toyota accept the offer, assuming that 20,000 units are produced (and sold)? $11.00 $11.50 None of these $8.50