Question 4 Toyota produces and sells bicycles. This year's expected production is 20,000 units. Currently, Toyota makes the chains for its bicycles. The management accountant of Toyota reports the following costs for making the 20,000 Toyota chains: Toyota has received an offer from an outside vendor to supply any number of chains Toyota requires at $20 per chain. The following additional information is available: - Inspection, set-up and materials-handling costs vary with the number of batches in which the chains are produced. Toyota produces chains in batch sizes of 1,000 units. Toyota will produce the 20,000 units in 20 batches - Toyota rents the machine used to make the chains. If Toyota buys all of its chains from the outside vendor, it does not need to pay rent on this machine. 1.1 Assume that if Toyota purchases the chains from the outside vendor, the facility where the chains are currently made will remain idle. On the basis of financial considerations alone, should Toyota accept the outside vendor's offer at the anticipated production and sales volume of 20,000 units? 1.2 Assume that if the chains are purchased from outside, the facilities where the chains are currently made will be used to upgrade the bicycles by adding mud flaps and reflectors. As a consequence, the selling price of bicycles will be raised by $30. The variable cost per unit of the upgrade would be $24, and additional tooling costs of $100,000 would be incurred. On the basis of financial considerations alone, should Toyota make or buy the chains, assuming that 20,000 bicycles are produced and sold? 1.3 The sales manager at Toyota is concerned that the estimate of 20,000 units may be high and believes that only 16,000 units will be sold. Production will be cut back, freeing up workspace. This space can be used to add the mud flaps and reflectors whether Toyota buys the chains or makes them in-house. At this lower out-put, Toyota will produce the chains in 16 batches of 1,000 units each. On the basis of financial considerations alone, should Toyota purchase the chains from the outside vendor? Question 4 Toyota produces and sells bicycles. This year's expected production is 20,000 units. Currently, Toyota makes the chains for its bicycles. The management accountant of Toyota reports the following costs for making the 20,000 Toyota chains: Toyota has received an offer from an outside vendor to supply any number of chains Toyota requires at $20 per chain. The following additional information is available: - Inspection, set-up and materials-handling costs vary with the number of batches in which the chains are produced. Toyota produces chains in batch sizes of 1,000 units. Toyota will produce the 20,000 units in 20 batches - Toyota rents the machine used to make the chains. If Toyota buys all of its chains from the outside vendor, it does not need to pay rent on this machine. 1.1 Assume that if Toyota purchases the chains from the outside vendor, the facility where the chains are currently made will remain idle. On the basis of financial considerations alone, should Toyota accept the outside vendor's offer at the anticipated production and sales volume of 20,000 units? 1.2 Assume that if the chains are purchased from outside, the facilities where the chains are currently made will be used to upgrade the bicycles by adding mud flaps and reflectors. As a consequence, the selling price of bicycles will be raised by $30. The variable cost per unit of the upgrade would be $24, and additional tooling costs of $100,000 would be incurred. On the basis of financial considerations alone, should Toyota make or buy the chains, assuming that 20,000 bicycles are produced and sold? 1.3 The sales manager at Toyota is concerned that the estimate of 20,000 units may be high and believes that only 16,000 units will be sold. Production will be cut back, freeing up workspace. This space can be used to add the mud flaps and reflectors whether Toyota buys the chains or makes them in-house. At this lower out-put, Toyota will produce the chains in 16 batches of 1,000 units each. On the basis of financial considerations alone, should Toyota purchase the chains from the outside vendor