Incremental Analysis-Make-Or-Buy Decision
Paramount Bikes, Inc Paramount Bikes, Inc

question 40

Essay

Incremental analysis-make-or-buy decision
Paramount Bikes, Inc., uses 10,000 derailleurs in its bicycles each year. Derailleurs currently cost the company $20.90 per unit to manufacture, determined as follows:
$$\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 50,600 \\\hline \text { Direct labor } & 55,000 \\\hline \text { Variable manufacturing overhead } & 37,400 \\\hline \text { Fixed manufacturing overhead } & \underline { 66,000 } \\\hline \text { Total costs } & \$ 209,000 \\\hline \text { Cost per unit } ( \$ 209,000 / 10,000 \text { units } ) & \$ 20.90 \\\hline\end{array}$$
Paramount Bikes, Inc., has been approached by an outside supplier that will provide derailleurs at a price of $16 per unit. If Paramount Bikes, Inc., stops producing derailleurs, the direct materials, direct labor, and variable manufacturing overhead will be eliminated, as will $30,000 of the fixed manufacturing overhead. Use incremental analysis to determine whether Paramount Bikes, Inc., should make or buy derailleurs. Complete the following schedule, and indicate in the space provided your decision to continue making, or to buy the part:

Decision: ___________________________________________

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Definitions:

Male Faculty

Refers to the male members of the teaching staff at an educational institution.

Male Group

A demographic or study group consisting exclusively of male subjects or participants.

Ranks Sum

The total value obtained by adding all the ranks assigned to the elements of a sample in non-parametric statistics.

NMR Data

Information derived from Nuclear Magnetic Resonance spectroscopy, used to determine the structure of molecules.