Question
Mountain Rides manufactures snowboards. Its cost of making 26,200 bindings is as follows: (Click the icon to view the costs.) Suppose an outside supplier
Mountain Rides manufactures snowboards. Its cost of making 26,200 bindings is as follows: (Click the icon to view the costs.) Suppose an outside supplier will sell bindings to Mountain Rides for $15 each. Mountain Rides will pay $1.00 per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of $0.20 per binding. Read the requirements. Data table Direct materials..... $ 21,000 Direct labor.... 86,400 Fixed manufacturing overhead..... Variable manufacturing overhead..... Total manufacturing costs... 42,000 86,400 $ 235,800 Cost per pair ($235,800+26,200) ..... $ 9.00 Print Done = Requirement 1. Mountain Rides' 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 Difference Outsourcing Decision Variable Costs Plus: Fixed Costs Total cost of 26,200 bindings Decision: Requirement 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $2,900 to profit. Total fixed costs will be the same as if Mountain Rides had produced the bindings. Show which alternative makes the best use of Mountain Rides' 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 Incremental Analysis (a) Make (b) Leave (c) Make Outsourcing Decision Binding Facilities Idle Another Product Variable Costs Plus: Fixed Costs Total cost of 26,200 bindings Less: Profit from another product Net cost Decision:
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