Jordan Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordan produces and sells only 7,800 bikes each year. Due the low volume of activity, Jordan is unable to obtain the economies of scale that larger producers achieve. For example, Jordan could buy the handlebars for $34 each; they cost $37 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials. Labor Overhead Allocated facility-level costs Total Per Unit Unit Cost $ 17 10 Total relevant cost Do you agree with the president's conclusion? 3 7 $ 37 After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $37 each when it can buy them for $34 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? No Total Total $ 132,600 78,000 23,400 54,600 $ 288,600
Jordan Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordan produces and sells only 7,800 bikes each year. Due the low volume of activity, Jordan is unable to obtain the economies of scale that larger producers achieve. For example, Jordan could buy the handlebars for $34 each; they cost $37 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials. Labor Overhead Allocated facility-level costs Total Per Unit Unit Cost $ 17 10 Total relevant cost Do you agree with the president's conclusion? 3 7 $ 37 After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $37 each when it can buy them for $34 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? No Total Total $ 132,600 78,000 23,400 54,600 $ 288,600
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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