Question

Outdoor Life manufactures showboards its cost of making 100 bindings s oos Click the icon to view the costs) Suppose Lewis will sell bindings to Outdoor Life for $13 each Oudoor de would pay Read the requirements per and to transport the bindings to its mancung where it would add is own cost of $060 percig Requirement 1. Outdoor Life's accountants predict that purchasing the indstromos able the company to $1000 ved over P relevant costs for the terone com a minus of parentheses only when the cost of outsourcing the cost of making the bindings an w house) to show wher e sh o rt Difference Make Outsource) Make Outsource Binding costs Bindings Bindings Variable costs Direct materials Direct labor Varmt overhead Frodos Purchase price from Lewis Transportation Logo Total differential cost of 1 800 bindings Enter any number in the edities and then ack Check Answer

Answer 1

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Outdoor life
Calculation of purchase costs:
	Per Unit	Total
Units purchased	1,800.00
Purchase price	13.00	23,400.00	This is Purchase price* Total units purchased
Transport	2.00	3,600.00	This is Transport price* Total units purchased
Logo	0.60	1,080.00	This is Logo price* Total units purchased
Answer 1
	Make	Outsource	Difference
Variable costs			-
Direct Material	17,510.00		17,510.00
Direct Labor	2,600.00		2,600.00
Variable Overhead	2,030.00		2,030.00
Fixed Costs		(1,900.00)	1,900.00
Purchase price		23,400.00	(23,400.00)
Transport		3,600.00	(3,600.00)
Logo		1,080.00	(1,080.00)
Total	22,140.00	26,180.00	(4,040.00)
Even after saving $ 1,900 in fixed costs Outsourcing still costs more by $ 4,040 for 1800 units. So proposal should not be accepted.
Note: Fixed cost is irrelevant in case of "Make" because it is sunk cost and company will continue to incur so not considered in case of Make decision,
But $ 1,900 of Fixed cost is saved if "Outsourced" so it will reduce Outsourcing cost that is why it is shown in negative in "Outsource" column.
Answer 2
	Make	Outsource & idle facility	Outsource & use facility
Variable costs
Direct Material	17,510.00
Direct Labor	2,600.00
Variable Overhead	2,030.00
Fixed Costs		(1,900.00)
Purchase price		23,400.00	23,400.00
Transport		3,600.00	3,600.00
Logo		1,080.00	1,080.00
Profit from another product			(2,700.00)
Total	22,140.00	26,180.00	25,380.00
Differential cost		4,040.00	3,240.00
Even if new product is added net Outsourcing still costs more by $ 3,240 for 1800 units. So proposal should not be accepted.
Note: Fixed cost is irrelevant in case of "Make" because it is sunk cost and company will continue to incur so not considered in case of Make decision,
But $ 1,900 of Fixed cost is saved if "Outsourced and idle facility is not used" so it will reduce Outsourcing cost that is why it is shown in negative in "Outsource" column.
But if "Outsourced and idle facility is used for another product" the fixed cost will be same as before so not considered.