Roaming Bicycle Manufacturing Company currently produces the handlebars used in

Question

Roaming Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Roaming produces and sells only 6,000 bikes each year. Due to the low volume of activity, Roaming is unable to obtain the economies of scale that larger producers achieve. For example, Roaming could buy the handlebars for $35 each; they cost $38 each to make. The following is a detailed breakdown of current production costs.

item unit cost total

unit level costs

Materials $18$108,000

Labor $12$72,000

Overhead$3$18,000

Allocated facility-level costs $5 $30,0000

Total $38 $228,000

After seeing these figures, Roaming

Explanation / Answer

So dont agree with president's conclusion.

The current cost for manufacturing bicycles is $38. Even if the company will outsource the bicycle it will still have to inur the facility cost associated. So the total cost will be Outsourcing cost......................................................................................... ...........210000 Facility level cost......................................................................................... ............30000 Total............................................................................................... ...........240000 This will be more than the manufacturing cost

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