Question
Cool BoardsCool Boards manufactures snowboards. Its cost of making 2,000 bindings is as follows: LOADING... (Click the icon to view the costs.)Suppose HemingwayHemingway will sell
Cool BoardsCool Boards
manufactures snowboards. Its cost of making
2,000
bindings is as follows:
LOADING...
(Click the icon to view the costs.)Suppose
HemingwayHemingway
will sell bindings to
Cool BoardsCool Boards
for
$14
each.
Cool BoardsCool Boards
would pay
$1
per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.60
per binding.Read the requirements
LOADING...
.Requirement 1.
Cool Boards'Cool Boards'
accountants predict that purchasing the bindings from
Hemingway
will enable the company to avoid
$2,000
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 | Outsource | Difference |
Binding costs | Bindings | Bindings | (MakeOutsource) |
Variable costs: |
|
|
|
Direct materials |
|
|
|
Direct labor |
|
|
|
Variable overhead |
|
|
|
Fixed costs |
|
|
|
Purchase price from Hemingway |
|
|
|
Transportation |
|
|
|
Logo |
|
|
|
Total differential cost of 2,000 bindings |
|
|
|
Enter any number in the edit fields and then click Check Answer.
| Clear All | Check Answer
|
Data Table
| Direct materials | $17,500 |
| Direct labor | 3,300 |
| Variable overhead | 2,120 |
| Fixed overhead | 6,600 |
| Total manufacturing costs for 2,000 bindings | $29,520 |
PrintDone
Requirements
1. | Cool Boards'Cool Boards' accountants predict that purchasing the bindings fromHemingwayHemingway will enable the company to avoid$2,000 of fixed overhead. Prepare an analysis to show whetherCool BoardsCool Boards should make or buy the bindings. |
2. | The facilities freed by purchasing bindings from HemingwayHemingway can be used to manufacture another product that will contribute$ 2 comma 600$2,600 to profit. Total fixed costs will be the same as ifCool BoardsCool Boards had produced the bindings. Show which alternative makes the best use ofCool Boards'Cool Boards' facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. |
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