erez Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Perez produces and sells only 7,400 bikes each year. Due to the low volume of activity, Perez is unable to obtain the economies of scale that larger producers achieve. For example, Perez could buy the handlebars for $34 each; they cost $37 each to make. The following is a detailed breakdown of current production costs.
Item Unit Cost Total
Unit-level costs
Materials $ 14 $ 103,600
Labor 9 66,600
Overhead 3 22,200
Allocated facility-level costs 11 81,400
Total $ 37 $ 273,800
After seeing these figures, Perez’s president remarked that it would be foolish for the company to continue to produce the handlebars at $37 each when it can buy them for $34 each.
Required
Calculate the total relevant cost.
