Ask him if he watched Bugs Bunny as a kid. Note the number of times Bugs dressed in drag. Explain that he must therefore be gay
Honestly, though, it sounds to me more like a guy who just doesn't have the life experience to deal with it; it IS outside his vocabulary. Hopefully he'll mature a bit and become more open minded. Best thing to do there is demonstrate tolerance and not be confrontational.
I admit that even I wouldn't really follow that explanation at all.
Two men who masturbate next to each other, not sexually attracted to each other at all, not romantically interested are not bisexual inherently.
Two women who use each other to have some fun, who aren't sexually attracted to each other or romantically attracted to each other are not bisexual inherently.
Sex =/= sexual attraction. An example, a person wants to have sex. Looks for a person who will have sex with them even though they're not necessarily sexually attracted to them. They have a one night stand. It's possible in a hetero-normative sense. Why is it not possible in a same sex scenario?
(Also, I honestly believe you might want to put this in the Bad and Ugly. You can ask an oracle how to do that.)
Edit: Also, the better/easier explanation would be to say "Labels aren't designed to define me, they're designed to help me explain myself. Me saying I'm heterosexual is how I explain myself. You saying that I'm bisexual, something I don't use to explain myself, is not okay."