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Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing​ 42,000 parts is​ $138,000, which includes fixed costs of​ $68,000 and variable costs of​ $70,000. The company can buy the part from an outside supplier for​ $3.50 per​ unit, and avoid​ 30% of the fixed costs.

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Answer:

It is more convenient to produce in house.

Explanation:

Giving the following information:

The cost of producing​ 42,000 parts is​ $138,000, which includes fixed costs of​ $68,000 and variable costs of​ $70,000.

The company can buy the part from an outside supplier for​ $3.50 per​ unit and avoid​ 30% of the fixed costs.

Produce in house:

Unitary variable cost= 70000/42000= 1.67

Fixed costs= 68000

Total cost= 138,000

Outsource:

Unitary price= 3.50

Fixed costs= (68000*0.70)= 47,600

Total cost= (3.5*42000)-47600= $194,600

It is more convenient to produce in house.

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