Outsourcing decision given alternative use of capacity (Learning Objective 6)}
X-Perience manufactures snowboards. Its cost of making 1,800 bindings is:

Suppose O'Brien will sell bindings to X-Perience for \(\$ 14\) each. X-Perience will pay \(\$ 1.00\) per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of \(\$ 0.20\) per binding.
\section*{Requirements}
1. X-Perience's accountants predict that purchasing the bindings from O'Brien will enable the company to avoid \(\$ 2,200\) of fixed overhead. Prepare an analysis to show whether X-Perience should make or buy the bindings.
2. The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute \(\$ 3,100\) to profit. Total fixed costs will be the same as if X-Perience had produced the bindings. Show which alternative makes the best use of X-Perience's facilities:

(a) make bindings,

(b) buy bindings and leave facilities idle, or

(c) buy bindings and make another product.

Transcribed Image Text:

Direct materials.. Direct labor......... Variable manufacturing overhead Fixed manufacturing overhead. Total manufacturing cost Cost per pair ($220,000+20,000)............ $ 20,000 80,000 40,000 80,000 $220,000 S 11