U Balance Corporation manufactures balance bikes for toddlers. The company currently makes the handlebars for the bikes, however, they have been approached by an outside supplier for U Balance to purchase the handlebars from them at a cost of $7.00 per set of handlebars. Management is trying to determine which is more cost effective and have provided some information for you to analyze: Per Unit Total Direct Materials $3.50 Direct Labour $3.00 Production supervisor $4.00 $80,000 Depreciation $1.00 $20,000 Rent $0.25 $5,000 The production supervisor will be employed in the factory whether the company buys or makes the handlebars. The depreciation is incurred on the factory equipment and is based on obsolescence (rather than wear and tear). Rent is on the entire production factory. The company will keep the same size of factory, even if they decide to purchase the handlebars from a supplier. Required:

a. What is the cost if the company makes the handlebars?

b. Should the company make the handlebars or purchase from an outside supplier?