Incremental Analysis - Make-Or-Buy Decision

question 41

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:
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: ________

---

Definitions:

Luteinizing Hormone

A hormone secreted by the anterior pituitary gland that plays a key role in regulating the menstrual cycle and ovulation in females and testosterone production in males.

Progesterone

A steroid hormone secreted by the ovary (mainly by the corpus luteum) and placenta; stimulates the uterus (to prepare the endometrium for implantation) and breasts (for milk secretion).

Endometrium

The uterine lining.

Seminiferous Tubules

Coiled tubules in the testes in which spermatogenesis takes place in male vertebrates.