Outdoor Life manufactures snowboards. Its cost of making 1,800 bindings is as follows:

Suppose Lewis will sell bindings to Outdoor Life for $15 each.

Outdoor Life would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.70

per binding. Read the requirements

.

Requirement 1. Outdoor Life's accountants predict that purchasing the bindings from Lewis will enable the company to avoid

$1,900 of fixed overhead. Prepare an analysis to show whether Outdoor Life 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 Lewis
Transportation
Logo
Total differential cost of 1,800 bindings

Should Outdoor Life make or buy the bindings?

Decision:

Buy the bindings.

Make the bindings.

Requirement 2. The facilities freed by purchasing bindings from Lewis can be used to manufacture another product that will contribute $2,700. to profit. Total fixed costs will be the same as if Outdoor Life had produced the bindings. Show which alternative makes the best use of Outdoor Life's facilities. (Only enter the net relevant costs. Enter all costs as positive values. Use a minus sign or parentheses for decreases to net

costs.)

		Outsource Bindings
	Make	Facilities	Make New
Binding costs	Bindings	Idle	Product
Variable Costs:
Direct materials
Direct labor
Variable overhead
Fixed costs
Purchase price from Lewis
Transportation
Logo
Expected profit from new product
Expected net cost of obtaining 1,800 bindings

Which alternative makes the best use of Outdoor Life's facilities?

Decision:

Buy the binding and leave the facilities idle.

Buy the binding and use the facilities to make the other product.

Make the bindings.

irect materials

$17,510

Direct labor

3,000

Variable overhead

2,040

Fixed overhead

6,400

Total manufacturing costs for 1,800 bindings

$28,950