Thornton Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Thornton produces and sells only 7,300 bikes each year. Due to the low volume of activity, Thornton is unable to obtain the economies of scale that larger producers achieve. For example, Thornton could buy the handlebars for $31 each; they cost $34 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $ 15 10 3 6 $34 Total $ 109,500 73,000 21,900 43,800 $ 248,200 After seeing these figures, Thornton's president remarked that it would be foolish for the company to continue to produce the handlebars at $34 each when it can buy them for $31 each.
Thornton Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Thornton produces and sells only 7,300 bikes each year. Due to the low volume of activity, Thornton is unable to obtain the economies of scale that larger producers achieve. For example, Thornton could buy the handlebars for $31 each; they cost $34 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Materials Labor Overhead Allocated facility-level costs Total Unit Cost $ 15 10 3 6 $34 Total $ 109,500 73,000 21,900 43,800 $ 248,200 After seeing these figures, Thornton's president remarked that it would be foolish for the company to continue to produce the handlebars at $34 each when it can buy them for $31 each.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Kai.9
![Thornton Bicycle Manufacturing Company currently produces the handlebars used in manufacturing
its bicycles, which are high-quality racing bikes with limited sales. Thornton produces and sells only
7,300 bikes each year. Due to the low volume of activity, Thornton is unable to obtain the economies
of scale that larger producers achieve. For example, Thornton could buy the handlebars for $31 each;
they cost $34 each to make. The following is a detailed breakdown of current production costs.
Item
Unit-level costs
Materials
Labor
Overhead
Allocated facility-level costs
Total
Per Unit
Unit Cost
Total relevant cost
Do you agree with the president's conclusion?
$15
10
After seeing these figures, Thornton's president remarked that it would be foolish for the company to
continue to produce the handlebars at $34 each when it can buy them for $31 each.
Required
Calculate the total relevant cost. Do you agree with the president's conclusion?
No
3
6
$ 34
Total
$ 109,500
73,000
21,900
43,800
$ 248,200
Total](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F46924923-9b5d-45ba-84b0-ebcd9a2f5d66%2F1c5d7986-efa4-4f34-bc13-00b1569d9421%2Fsgwkvoa_processed.png&w=3840&q=75)
Transcribed Image Text:Thornton Bicycle Manufacturing Company currently produces the handlebars used in manufacturing
its bicycles, which are high-quality racing bikes with limited sales. Thornton produces and sells only
7,300 bikes each year. Due to the low volume of activity, Thornton is unable to obtain the economies
of scale that larger producers achieve. For example, Thornton could buy the handlebars for $31 each;
they cost $34 each to make. The following is a detailed breakdown of current production costs.
Item
Unit-level costs
Materials
Labor
Overhead
Allocated facility-level costs
Total
Per Unit
Unit Cost
Total relevant cost
Do you agree with the president's conclusion?
$15
10
After seeing these figures, Thornton's president remarked that it would be foolish for the company to
continue to produce the handlebars at $34 each when it can buy them for $31 each.
Required
Calculate the total relevant cost. Do you agree with the president's conclusion?
No
3
6
$ 34
Total
$ 109,500
73,000
21,900
43,800
$ 248,200
Total
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