Calculate the total relevant cost

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Reference no: EM133973825

Problem

Benson Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Benson produces and sells only 6,300 bikes each year. Due to the low volume of activity, Benson is unable to obtain the economies of scale that larger producers achieve. For example, Benson could buy the handlebars for $30 each; they cost $33 each to make. The following is a detailed breakdown of current production costs. Get the instant assignment help.

Item Unit Cost Total
Unit-level costs
Materials $ 14 $ 88,200
Labor 9 56,700
Overhead 3 18,900
Allocated facility-level costs 7 44,100
Total $ 33 $ 207,900

After seeing these figures, Benson's president remarked that it would be foolish for the company to continue to produce the handlebars at $33 each when it can buy them for $30 each.

Task

Calculate the total relevant cost. Do you agree with the president's conclusion?

Reference no: EM133973825

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