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Question - Riverbed Rides makes bicycles. It has always purchased its bicycle tires from the Balyo Tires at $11 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$4
Direct labor$5
Variable manufacturing overhead$2
The company's fixed expenses would increase by $28,190 per year if managers decided to make the tire.
(a) Calculate total relevant cost to make or buy if the company needs 5,860 tires a year.
(a) Ignoring qualitative factors, if the company needs 5,860 tires a year, should it continue to purchase them from Balyo or begin to produce them internally?
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