P22-5 Making outsourcing decisions [2030 min] Outdoor Life manufactures snowboards. Its cost of making 2 000 bindings is as follows: Direct materials $17 550 Direct labor 3 400 Variable overhead 2 040 Fixed overhead 6 300 Total manufacturing costs for 2 000 bindings $29 290 Suppose Lancaster will sell bindings to Outdoor Life for $14 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. Requirements 1 Outdoor Lifes accountants predict that purchasing the bindings from Lancaster will enable the company to avoid $2 100 of fixed overhead. Prepare an analysis to show whether Outdoor Life should make or buy the bindings. 2 The facilities freed up by purchasing bindings from Lancaster 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 Lifes facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.