Question 2 (10 marks)

Ryan Inc. is a manufacturer of bicycles that are sold across Canada. The Phantom Pro is Ryans most popular model, and it currently sells for $123 each. The following information pertains to the current years production of the Phantom Pro:

Number of units manufactured and sold	10,000
Direct materials cost per unit	$ 37.25
Direct labour cost per unit	18.35
Variable manufacturing overhead cost per unit	7.75
Fixed manufacturing overhead cost per unit	25.60
Total unit cost	$ 88.95

Nankai Cycle and Motors has offered to supply Ryan with up to 15,000 units of the Phantom Pro at a price of $71.50 each, including all shipping costs.

Ryan expects the following for next year:

Sales price per unit	$ 123
Number of units manufactured and sold	12,000
Increase in direct materials cost per unit	+ 2%
Increase in direct labour cost per unit	+ 5%
Decrease in variable manufacturing overhead cost per unit	2%

Required:

1. Determine whether Ryan should keep manufacturing the Phantom Pros or buy them from Nankai. Assume that 30% of the fixed costs relating to the Phantom Pro are avoidable if the units are purchased from Nankai. Show all calculations and justify your answer.
2. Please discuss any qualitative factors that should be considered.