1 Requirements 1. Outdoor Life's accountants predict that purchasing the bindings from Hemingway will enable the company to avoid $1,900 of fixed overhead. Prepare an analysis to show whether Outdoor Life should make or buy the bindings. 2. The facilities freed by purchasing bindings from Hemingway can be used to manufacture another product that will contribute $3,500 to profit. Total fixed costs will be the same as if Outdoor Life had produced the bindings. Show which alternative makes the best use of Outdoor Life's facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. Print Done Data table $ Direct materials Direct labor Variable overhead Fixed overhead 17,530 2,600 2,070 6,900 $ 29,100 Total manufacturing costs for 1,800 bindings Print Done Outdoor Life manufactures snowboards. Its cost of making 1,800 bindings is as follows: (Click the icon to view the costs.) Suppose Hemingway will sell bindings to Outdoor Life for $14 each. Outdoor Life would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.50 per binding. Read the requirements. Requirement 1. Outdoor Life's accountants predict that purchasing the bindings from Hemingway will enable the company to avoid $1,900 of fixed overhead. Prepare an analysis to show whether Outdoor Life should make or buy the bindings. (Only enter the net relevant costs. For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the bindings in-house.) Make Outsource Difference Binding costs Bindings Bindings (Make-Outsource) Variable costs: Direct materials Direct labor Variable overhead Fixed costs Purchase price from Hemingway Transportation Logo Total differential cost of 1,800 bindings Should Outdoor Life make or buy the bindings? Decision Requirement 2. The facilities freed by purchasing bindings from Hemingway can be used to manufacture another product that will contribute 3,500 to profit. Total fixed costs will be the same as if Outdoor Life had produced the bindings. Show which alternative makes the best use of Outdoor Life's facilities. (Only enter the net relevant costs. Enter all costs as positive values. Use a minus sign or parentheses for decreases to net costs.) Outsource Bindings Make Facilities Make New Binding costs Bindings Idle Product Variable Costs Direct materials Direct labor Variable overhead Fixed costs Purchase price from Hemingway Transportation Logo Expected profit from new product Expected net cost of obtaining 1,800 bindings Which alternative makes the best use of Outdoor Life's facilities? Decision