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 30% of the fixed costs.

Question

Business

Frauline

13 November, 13:45

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 30% of the fixed costs.

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Answers (1)

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Jude Lamb · Answer 1

It is more convenient to produce in house.

Explanation:

Giving the following information:

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 30% of the fixed costs.

Produce in house:

Unitary variable cost = 70000/42000 = 1.67

Fixed costs = 68000

Total cost = 138,000

Outsource:

Unitary price = 3.50

Fixed costs = (68000*0.70) = 47,600

Total cost = (3.5*42000) - 47600 = $194,600

It is more convenient to produce in house.