Hill bicycle manufacturing company currently produces the

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Reference no: EM13600344

Hill Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Hill produces and sells only 6,000 bikes each year. Due to the low volume of activity, Hill us unable to obtain the economics of scale that larger producers achieve. For example, Hill could buy the handlebars for $28 each; they cost $32 each to make. The following is a detailed breakdown of current production costs. Unit level costs $14 total, $84,000; materials $10 total $60,000; labor $3 total $18,000; overhead $ total $30,000; total unit cost $32 and total $192,000. After seeing these figures, Hill's president remarked that it would be foolish for the company to continue to produce the handlebars at $32 each when it can buy them for $28 each.

Required: Do you agree with the president's conclusion? Support your answer with appropriate computations.

Reference no: EM13600344

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