You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year,

Zoom manufactured and sold 20,000 bicycles. Wheels, seats, and brake calipers are three components of

the bicycles currently manufactured by Zoom. Three different vendors have proposed to provide those

components to Zoom, and quoted prices (including shipping) for their delivery. Your task is to determine

which, if any, of these proposals should be accepted.

Prepare a make vs. buy incremental analysis for each possible course of action in an Excel worksheet. Your

grade will be based on the correctness of your answers, as well as the use of Excel. That is, where possible,

you should use formulas to get your answers, rather than keyed-in values. See your instructor for help with

Excel basics if you need it.

In a Word document, prepare a memo stating which of the proposals you suggest accepting, as well as the

basis for your conclusions. Also identify any nonfinancial factors you should consider before accepting any

of the outsourcing proposals.

Below is cost data for Zoom's production of wheels, seats, and calipers. Outside suppliers have offered to

provide wheels for $7.26, seats for $7.76, and calipers for $2.56 per piece. Both wheels and seats are branded

with the Zoom logo, and that logo will need to be added at the Zoom factory at a cost of $0.50 each for any

of these components that are outsourced. For all three components, 75% of the fixed costs are avoidable, and

will be eliminated if the component's production is outsourced. In addition, seats and calipers are both

produced out of the same small factory space. If both seats and calipers were outsourced, Zoom could lease

the space out and increase net income by $6,000 per year, while eliminating all fixed costs for the two

components.

Wheels

Seats

Calipers

Cost category

Direct materials

$138,000

$54,500

$90,500

Direct labor

97,000

71,500

41,500

Variable overhead

21,000

14,000

16,000

Fixed overhead

58,600

36,600

31,400

Total cost

$314,600

$176,600

$179,400

Units produced

40,000

20,000

80,000

Cost per unit

$7.87

$8.83

$2.24

Hints: Prepare incremental analyses for each component separately. Make wheels vs. buy wheels, etc. Since

there are additional implications to outsourcing both seats and calipers, do a make vs. buy analysis assuming

both are outsourced. A correct solution, then, will likely have at least four incremental analyses.