Question

Cool Boards manufactures snowboards. Its cost of making 19,000 bindings is as follows: (Click the icon to view the costs.) Suppose an outside supplier will sell bindings to Cool Boards for $11 each. Cool Boards will pay $3.00 per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of $0.30 per binding. Read the requirements Requirement 1. Cool Boards' accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,200 of fixed overhead. Prepare an analysis to show whether Cool Boards should make or buy the bindings. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cont and your final answers to the nearest whole dollar. Use a mibus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy)

Answer 1

Solution 1:

Incremental Analysis - Outsourcing Decision
Particulars	Make Bindings	Buy (Outsource) Bindings	Difference
Variable costs:
Direct material	$22,000.00		-$22,000.00
Direct labor	$81,000.00		-$81,000.00
Variable overhead	$44,000.00		-$44,000.00
Fixed costs	$2,200.00		-$2,200.00
Purchase price from Outside supplied		$2,09,000.00	$2,09,000.00
Transportation		$57,000.00	$57,000.00
Logo		$5,700.00	$5,700.00
Total cost of 1700 bindings	$1,49,200.00	$2,71,700.00	$1,22,500.00

Decision: Make bindings

SOlution 2:

Incremental Analysis - Outsourcing Decision
Particulars	(a) Make Bindings	Buy (Outsource) Bindings
		(b) Leave faciltiies idle	© Make another product
Variable costs:
Direct material	$22,000.00
Direct labor	$81,000.00
Variable overhead	$44,000.00
Fixed costs	$2,200.00		$2,200.00
Purchase price from Witherspoon		$2,09,000.00	$2,09,000.00
Transportation		$57,000.00	$57,000.00
Logo		$5,700.00	$5,700.00
Total cost of 2100 bindings	$1,49,200.00	$2,71,700.00	$2,73,900.00
Less: Profit from another product	$0.00	$0.00	$3,400.00
Net Cost	$1,49,200.00	$2,71,700.00	$2,70,500.00

Decision: continue to make the bindings