Reference no: EM131967143

Problem

Quality Bikes, Inc., currently produces racing bikes. Management is interested in outsourcing production of these bikes to a reputable manufacturing company that can supply the bikes for $631 per unit.Outsourcing production eliminates all variable production costs, the production supervisor's salary, and factory insurance costs. Factory building lease costs will remain the same regardless of the decision to outsource or to produce internally. Quality Bikes incurs the following annual production costs to produce 1,782 racing bikes internally: variable costs: direct material $773,287, direct labor $199,010, manufacturing overhead $116,082 fixed costs: factory lease costs $177,074, factory insurance 41,654 and production supervisor's salary 70,540 Perform differential analysis on this 'make or buy' decision. How much more/less costs is the 'make' alternative compared to the 'buy' alternative?