Mountain Sports manufactures snowboards. Its cost of making 30,125 bindings is as follows: (Click the icon to view the costs.) Suppose an outside supplier will sell bindings to Mountain Sports for $12 each. Mountain Sports will pay $2.00 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. Mountain Sports' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,500 of fixed overhead. Prepare an analysis to show whether Mountain Sports should make or buy the bindings. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.) 0 Data Table A Requirements . X ....$ Direct materials ......... Direct labor. Variable manufacturing overhead.... 25,000 83,000 50,000 83,000 1. Mountain Sports' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,500 of fixed overhead. Prepare an analysis to show whether Mountain Sports 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 $3,100 to profit. Total fixed costs will be the same as if Mountain Sports had produced the bindings. Show which alternative makes the best use of Mountain Sports's facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. Fixed manufacturing overhead. $ 241,000 Total manufacturing costs.............. Cost per pair ($241,000 / 30,125) ...$ 8,00 Requirement 1. Mountain Sports' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,500 of fixed overhead. Prepare an analysis to show whether Mountain Sports 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 Outsourcing Decision Variable Costs Make Bindings Buy (Outsource) Bindings Difference Plus: Fixed Costs Total cost of 30,125 bindings Decision: Requirement 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Mountain Sports had produced the bindings. Show which alternative makes the best use of Mountain Sports's 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.) Incremental Analysis Outsourcing Decision (a) Make Binding Buy (Outsource) Bindings (b) Leave (c) Make Facilities Idle Another Product Variable Costs Plus: Fixed Costs Total cost of 30,125 bindings Less: Profit from another product Net cost Decision
