Reference no: EM132527694

Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 42,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 100% of the fixed costs.

Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $15,000 profit.

Question 1: By what amount does profit (or operating income) change if the company chooses to buy the part?

Question 2: Should Blue Ridge Bicycles make or buy the part?