Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sarasota Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged

Sarasota Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $3.00 and $3.60 respectively. Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $8 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.

Required:

a. Prepare an incremental analysis for the decision to make or buy the wheels. b. Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

b. Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microfinance

Authors: Gianfranco A. Vento, Mario La Torre

4th Edition

1403997896, 9781403997890

More Books

Students also viewed these Accounting questions

Question

Fixed dollar match: 75 cents per each $1 employee contribution.

Answered: 1 week ago