22. (5 points for each part10 points total) Cold Sports manufactures snowboards. Its cost of making 3,000 bindings is as follows:

Direct Materials $20,000

Direct Labor $3,800

Variable Overhead $5,000

Fixed Overhead $12,000

Suppose Topnotch will sell bindings to Cold Sports for $16 each. Cold Sports would be $2 per unit for transportation and would add its own logo at a cost of $0.50 per binding.

a. Cold Sports accountants predict that purchasing the bindings from Topnotch would allow them to avoid $10,000 of fixed overhead. Provide an analysis to show whether Cold Sports should make or buy the bindings?

b. Suppose the facilities freed by purchasing bindings could be used to manufacture another product that will contribute $15,000 to profit. Total fixed costs would be the same as if Cold Sports had produced the bindings. Show which alternative is best: (a) make bindings; (b) buy bindings and leave facilities idle; (c) buy bindings and make another product.