The Ruth Bicycle Corp

The Ruth Bicycle Corp. is considering whether to continue to make gears for its bicycles, or whether to buy the gears from an outside supplier. It can buy the gears from outside suppliers at $12 per unit. It needs 100,000 units each year. The company has the following manufacturing costs: raw materials = $6 per unit; direct labor = $1 per unit; variable overhead = $2 per unit; avoidable fixed costs of $200,000 per year and non-avoidable fixed costs of $300,000 per year. The effect of stopping pr

A) Decrease profits by $300,000
B) Decrease profits by $100,000
C) Increase profits by $100,000
D) Increase profits by $300,000

Correct Answer:

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