Question

Pina Colada Rides makes bicycles. It has always purchased its bicycle tires from the Balyo Tires at $12 each but is currently considering making the tires in its own factory. The estimated costs per unit of making the tires are as follows:Direct materials $3 Direct labor $5 Variable manufacturing overhead $1 The company’s fixed expenses would increase by $29,910 per year if managers decided to make the tire. (a1) Calculate total relevant cost to make or buy if the company needs 5,810 tires a year. Total relevant cost:Make_____Buy____

Answer 1

Total relevant cost:

Make = $ 14.15 each

Buy = $12 each

Step-by-step explanation:

Total Relevant Cost : Buy

Is the Purchase Price

= $12 each

Total Relevant Cost : Make

Is the Manufacturing costs and other related costs to manufacture.

Direct materials $3.00

Direct labor $5.00

Variable manufacturing overhead $1.00

Fixed expensed ($29,910/ 5,810) $5.15

Total $ 14.15

= $ 14.15 each