Question
Mountain SportsMountain Sports manufactures snowboards. Its cost of making 19,000 bindings is as follows: Direct materials. . . . . . . . . .
Mountain SportsMountain Sports manufactures snowboards. Its cost of making 19,000 bindings is as follows:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,000
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,000
Variable manufacturing overhead. . . . . . . . . . . . . .
44,000
Fixed manufacturing overhead. . . . . . . . . . . . . . . .
81,000
Total manufacturing costs. . . . . . . . . . . . . . . . . . . .
$228,000
Cost per pair ($228,000 / 19,000). . . . . . . . . . . . . .
$12.00
Mountain SportsMountain Sports for $15 each.Mountain SportsMountain 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
$0.50 per binding.Read the requirements
.
.
Requirement 1. Mountain Sports'Mountain Sports'
accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,600 of fixed overhead. Prepare an analysis to show whether Mountain SportsMountain 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 | Make | Buy (Outsource) |
|
Outsourcing Decision | Bindings | Bindings | Difference |
Variable Costs | $147,000 | $332,500 | $185,500 |
Plus: Fixed Costs | 81,000 | 78,400 | (2,600) |
Total cost of 19,000 bindings | $228,000 | $410,900 | $182,900 |
Decision:
Make the bindings.
Requirement 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $2,600 to profit. Total fixed costs will be the same as if
Mountain SportsMountain Sports had produced the bindings. Show which alternative makes the best use of
Mountain Sports'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.)
| 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 19,000 bindings |
|
|
|
Less: Profit from another product |
|
|
|
Net cost |
|
|
|
I only need help with requirement 2
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