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Bolder Bikes, Inc. mountain bike frames: make or buy?

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Bolder Bikes, Inc. manufactures mountain bike frames in Boulder Colorado. In 2012, they produced 24,000 frames at a total cost of $1,296,000. Frames Unlimited, Inc. has offered to supply as many frames as Boulder Bikes wants at a cost of $49.50. Boulder Bikes anticipates needing 26,000 frames each year over the next few years. Boulder Bikes uses historical cost data to come up with the following regression equation with total manufacturing costs of the frame as the dependent variable and frames produced as the independent variable:
y=$545,000 + 21X

During the years used to estimate the regression equation, the production of frames varied from 22,000 to 26,000.
a. Using this equation, estimate how much it would cost Boulder Bikes to manufacture the 26,000 frames.
b. How much more or less costly is it to manufacture the frames rather than to acquire them from Frames Unlimited?

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Solution Summary

Your tutorial includes three graphs, one for each variable, the high low method for the two variable costs, three cost functions and a combined cost function for utilities. A prediction is made for you. Click in cells to see computations.

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1. Jersey Subs, Inc. See attached work in excel (see separate tab for graphs and high low work.)

2. Bolder Bikes, Inc.

a. Using this equation, estimate how much it would cost Boulder Bikes to ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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