The bicycle company produces a proprietary carbon fiber for the road bike frames. The cost for the carbon fiber sheets are
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Direct Materials
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$50.00
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Direct Labor
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$20.00
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Variable Manufacturing Overhead
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$10.00
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Fixed Manufacturing Overhead
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$40.00
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Total Cost Per Sheet
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$120.00
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The company can produce 10,000 carbon fiber sheets from an outside producer for $100.00 per sheet. However, If the company's proprietary carbon fiber is a strong selling point. If the company buys the sheets, they will lose $150,000 in sales. The company has also determined that 25% of the fixed manufacturing overhead will still be incurred regardless if the company makes or buys the sheets. Compare the relevant costs to determine if the company should make or buy the carbon fiber sheets.