Jordan Bicycle Manufacturing Company currently produces the handlebars used inmanufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordanproduces and sells only 6,200 bikes each year. Due to the low volume of activity, Jordanis unable to obtain the economies of scale that larger producers achieve. For example,Jordan could buy the handlebars for $37 each; they cost $40 each to make. Thefollowing is a detailed breakdown of current production costs.UnitTotalItemCostUnit-level costsMaterials$17$105,40055,80012,400LaborOverhead2Allocated facility-level74,40012costs$40$248,000TotalAfter seeing these figures, Jordan's president remarked that it would be foolish for thecompany to continue to produce the handlebars at $40 each when it can buy them for$37 eachRequired:a. Calculate the total relevant cost.TotalPer UnitTotal relevant costb. Do you agree with the president's conclusion?YesNoO O

Question
Asked Nov 11, 2019
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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 6,200 bikes each year. Due to 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 $37 each; they cost $40 each to make. The
following is a detailed breakdown of current production costs.
Unit
Total
Item
Cost
Unit-level costs
Materials
$17
$105,400
55,800
12,400
Labor
Overhead
2
Allocated facility-level
74,400
12
costs
$40
$248,000
Total
After seeing these figures, Jordan's president remarked that it would be foolish for the
company to continue to produce the handlebars at $40 each when it can buy them for
$37 each
Required:
a. Calculate the total relevant cost.
Total
Per Unit
Total relevant cost
b. Do you agree with the president's conclusion?
Yes
No
O O
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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 6,200 bikes each year. Due to 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 $37 each; they cost $40 each to make. The following is a detailed breakdown of current production costs. Unit Total Item Cost Unit-level costs Materials $17 $105,400 55,800 12,400 Labor Overhead 2 Allocated facility-level 74,400 12 costs $40 $248,000 Total After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $40 each when it can buy them for $37 each Required: a. Calculate the total relevant cost. Total Per Unit Total relevant cost b. Do you agree with the president's conclusion? Yes No O O

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Expert Answer

Step 1

(a) Compute the relevant cost.

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Particulars Per unit Total 28 $173,600 Total relevant cost

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Step 2

Working Notes:

Compute the total per unit.

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Particulars Per unit Material 17 Labor 9 Overhead 2 Total 28

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Step 3

Compute the relevant cos...

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Total cost per unit Relevant cost xNumber of units $28x6,200 - $173 , 600

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