Cool Boards manufactures snowboards. Its cost of making 24,900 bindings is as follows: (Click the icon to view the costs.) Suppose an outside supplier will sell bindings to Cool Boards for $16 each. Cool Boards will pay $3.00 per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of $0.60 per binding. Read the requirements Requirement 1. Cool Boards' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,000 of fixed overhead. Prepare an analysis to show whether the company should make or buy the bindings. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.) Incremental Analysis Make Bindings Buy (Outsource) Bindings Outsourcing Decision Difference Variable Costs Plus: Fixed Costs Total cost of 24,900 bindings Decision: Requirement 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $3,300 to profit. Total 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: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar.) Buy (Outsource) Bindings (c) Make Incremental Analysis Outsourcing Decision (a) Make Binding Another Product Variable Costs Plus: Fixed Costs Total cost of 24,900 bindings Less: Profit from another product Net cost Decision: (b) Leave Facilities Idle Data table Direct materials ..... $ Direct labor..... Variable manufacturing overhead ..... Fixed manufacturing overhead .. Total manufacturing costs.. Cost per pair ($249,000 + 24,900) 27,000 84,000 54,000 84,000 $ 249,000 $ 10.00 - X Requirements 1. Cool Boards' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,000 of fixed overhead. Prepare an analysis to show whether the company should make or buy the bindings. 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $3,300 to profit. Total 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: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. x
