Reinhart Corporation makes bicycles. For many years, Reinhart has made the rear wheel assembly for its bicycles. Recently, Bennett Company offered to sell these rear wheel assemblies to Reinhart. If Reinhart makes the assembly, its cost per rear wheel assembly is as follows: Direct materials $10.00 Direct labor 18.00 Variable manufacturing overhead 10.00 Fixed manufacturing overhead, avoidable 8.00 Fixed manufacturing overhead, unavoidable (allocated on the basis of labor-hours) 10.00 Unit product cost $56.00 These costs are based on an annual production of 50,000 units. Bennett offered to sell the assembly to Reinhart for $48.00 each. The total order would amount to 50,000 rear wheel assemblies per year, which Reinhart’s management will buy instead of making if the company can save at least $75,000 per year. Should Reinhart make rear wheel assemblies or buy them from Bennett? Show computations. Discuss qualitative factors that might be considered in the decision-making process.
Reinhart Corporation makes bicycles. For many years, Reinhart has made the rear wheel assembly for its bicycles. Recently, Bennett Company offered to sell these rear wheel assemblies to Reinhart. If Reinhart makes the assembly, its cost per rear wheel assembly is as follows:
Direct materials $10.00
Direct labor 18.00
Variable manufacturing
Fixed manufacturing overhead, avoidable 8.00
Fixed manufacturing overhead, unavoidable
(allocated on the basis of labor-hours) 10.00
Unit product cost $56.00
These costs are based on an annual production of 50,000 units.
Bennett offered to sell the assembly to Reinhart for $48.00 each. The total order would amount to 50,000 rear wheel assemblies per year, which Reinhart’s management will buy instead of making if the company can save at least $75,000 per year.
- Should Reinhart make rear wheel assemblies or buy them from Bennett? Show computations.
- Discuss qualitative factors that might be considered in the decision-making process.
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