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Calculate the total relevant cost

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Question - Thornton Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Thornton produces and sells only 6,100 bikes each year. Due to the low volume of activity, Thornton is unable to obtain the economies of scale that larger producers achieve. For example, Thornton could buy the handlebars for $37 each; they cost $40 each to make. The following is a detailed breakdown of current production costs:

Item Unit Cost Total

Unitlevelcosts

Materials $17 $103,700

Labor 10 61,000

Overhead 2 12,200

Allocated facility-level costs 11 67,100

Total $40 $244,000

After seeing these figures, Thornton's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each.

Required - Calculate the total relevant cost. Do you agree with the president's conclusion?

Reference no: EM132925299

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