XPerience

manufactures snowboards. Its cost of making

2,100

bindings is as follows:

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(Click the icon to view the costs.)

Suppose

Monroe

will sell bindings to

XPerience

for

$15

each.

XPerience

would pay

$1

per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of

$0.60

per binding.

Data table

Direct materials	$17,530
Direct labor	3,000
Variable overhead	2,050
Fixed overhead	6,900
Total manufacturing costs for 2,100 bindings	$29,480

Requirement 1.

XPerience's

accountants predict that purchasing the bindings from

Monroe

will enable the company to avoid

$2,400

of fixed overhead. Prepare an analysis to show whether

XPerience

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 Monroe
Transportation
Logo
Total differential cost of 2,100 bindings

Part 2

Should

XPerience

make or buy the bindings?

Decision:

Buy the bindings.

Make the bindings.

Part 3

Requirement 2. The facilities freed by purchasing bindings from

Monroe

can be used to manufacture another product that will contribute

$2,800

to profit. Total fixed costs will be the same as if

XPerience

had produced the bindings. Show which alternative makes the best use of

XPerience'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 Monroe
Transportation
Logo
Expected profit from new product
Expected net cost of obtaining 2,100 bindings

Part 4

Which alternative makes the best use of

XPerience'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.