Verlander Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and $9.00, respectively. Normal production is 50,000 bicycles per year.
A supplier offers to make ths bicycle seats at a price of $21 each. If the bicycles company accepts this offer, all variable manufacturing costs will be elimated, but the $30,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. Required:1. Prepare the incremental analysis for the decision to make or buy the bicycle seats.2. Should Kuhn Bicycle Company buy the seats from the outside supplier? Justify your answer?