Paramount Bikes, Inc., uses 10,000 derailleurs in its bicycles each year. Derail
ID: 2367681 • Letter: P
Question
Paramount Bikes, Inc., uses 10,000 derailleurs in its bicycles each year. Derailleurs currently cost the company $20.90 per unit to manufacture, determined as follows:
Paramount Bikes, Inc., has been approached by an outside supplier that will provide derailleurs at a price of $16 per unit. If Paramount Bikes, Inc., stops producing derailleurs, the direct materials, direct labor, and variable manufacturing overhead will be eliminated, as will $30,000 of the fixed manufacturing overhead. Use incremental analysis to determine whether Paramount Bikes, Inc., should make or buy derailleurs. Prepare a schedule, and indicate your decision to continue making, or to buy the part:
Explanation / Answer
The amount spent on 10,000 Derailleurs is 209,000 currently
If they outsource its 66,000 - 30,000 + 160,000 = 196,000
Hence its better for them to buy the derailleurs
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