Sarasota Bicycles Has Been Manufacturing Its Own Wheels for Its

question 103

Essay

Sarasota Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $3.00 and $3.60 respectively. Normal production is 200,000 wheels per year.
A supplier offers to make the wheels at a price of $8 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.
Required:
a.Prepare an incremental analysis for the decision to make or buy the wheels.
b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

---

Definitions:

Sexual Harassment

Unwelcome sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature that affects an individual's employment or creates a hostile work environment.

Workplace Bullying

Repeated, health-harming mistreatment of one or more persons (the targets) by one or more perpetrators in a work context.

Responses

The reactions or replies to stimuli, questions, or situations.

Prevention

Actions or strategies aimed at stopping problems or issues from occurring or worsening.