Question - Riverbed Rides makes bicycles. It has always purchased its bicycle tires from the Balyo Tires at $11 each but is currently considering making the tires in its own factory. The estimated costs per unit of making the tires are as follows:

Direct materials$4

Direct labor$5

Variable manufacturing overhead$2

The company's fixed expenses would increase by $28,190 per year if managers decided to make the tire.

(a) Calculate total relevant cost to make or buy if the company needs 5,860 tires a year.

(a) Ignoring qualitative factors, if the company needs 5,860 tires a year, should it continue to purchase them from Balyo or begin to produce them internally?