Bam Corporation manufactures snowboards. Its cost of making 2,000 bindings is as follows:

Direct materials $20,000

Direct labor 8,000

Variable overhead 4,000

Fixed overhead 4,000

Total manufacturing costs for 2,000 bindings $36,000

Suppose Wade Inc. will sell bindings to Bam for $16 each. Bam would pay $2 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.80 per binding.

Required:

1. Bams accountants predict that purchasing the bindings from Wade will enable the company to avoid $3,000 of fixed overhead. Prepare an analysis to show whether Bam should make or buy the bindings.
2. The facilities freed by purchasing bindings from Wade Inc. can be used to manufacture another product that will contribute $6,000 to profit. Total fixed costs will be the same as if Bam had produced the bindings. Show which alternative makes the best use of Bam facilities: a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.