A supplier offers to make the wheels at a price of $8 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed byother products.Required:a.Prepare an incremental analysis for the decision to make or buy the wheels.b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.Answer:
Diff: 3Objective: 2AACSB: Application of knowledge75) Explain what revenues and costs are relevant when choosing among alternatives.
Diff: 2Objective: 2AACSB: Analytical thinking76) Explain why sunk costs are not considered relevant when choosing among alternatives with example.
Diff: 2Objective: 2AACSB: Analytical thinking