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Cool Boards manufactures snowboards. Its cost of making 1,700 bindings is as follows: (Click the icon to view the costs.) Suppose Lancaster will sell bindings
Cool Boards manufactures snowboards. Its cost of making 1,700 bindings is as follows: (Click the icon to view the costs.) Suppose Lancaster will sell bindings to Cool Boards for $13 each. Cool Boards would pay $2 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.40 per binding. Read the requirements. Requirement 1. Cool Boards' accountants predict that purchasing the bindings from Lancaster will enable the company to avoid $2,400 of fixed overhead. Prepare an analysis to show whether Cool Boards 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 Bindings Outsource Bindings Difference (Make Outsource) Binding costs 0 Data Table $ Variable costs: Direct materials Direct labor Variable overhead Fixed costs Purchase price from Lancaster Transportation Direct materials Direct labor Variable overhead 17,560 3.200 2,060 7,100 Fixed overhead $ 29,920 Total manufacturing costs for 1,700 bindings Logo Total differential cost of 1,700 bindings Print Done Should Cool Boards make or buy the bindings? Decision Cool Boards manufactures snowboards. Its cost of making 1,700 bindings is as follows: Click the icon to view the costs. Suppose Lancaster will sell bindings to Cool Boards for $13 each. Cool Boards would pay $2 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.40 per binding. Ruad the requirements. Requirement 2. The facilities freed by purchasing bindings from Lancaster can be used to manufacture another product that will contribute $3,000 to profit. Tolal fixed costs will be the same as if Cool Boards had produced the bindings. Show which alternative makes the best use of Cool Boards' 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 Facilities Make New Make Bindings Idle Product Binding costs Variable Costs: Direct materials Direct labor Variable overhead Fixed costs Purchase price from Lancaster Transportation Logo Expected profit from new product Expected net cost of obtaining 1,700 bindings Which alternative makes the best use of Cool Boards' facilities
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