Question

Winter Pro makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for Winter Pro for $20 per pair. Winter Pro needs 130,000 pairs of poles per period. Winter Pro can only avoid $190,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Winter Pro currently has the following costs at a production level of 130,000 pairs of poles: (Click the icon to view the table.) 1. 2. Should Winter Pro outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Pro's operating income? If the freed capacity could be used to produce ski boots that would provide $578,000 of operating income, should Winter Pro outsource ski pole production? 1. Should Winter Pro outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Pro's operating income? Begin by preparing the incremental analysis for outsourcing decision. (Use a minus sign or parentheses in the Difference column if the cost to make exceeds the cost to outsource.) Incremental Analysis Outsourcing Decisions Make Ski Poles Outsource Ski Poles * Data Table Difference Variable costs: Plus: Fixed costs Total cost of producing 130,000 pairs of poles Manufacturing Costs Total Cost 1,235,000 Cost per pair (130,000 pairs) $ 9.50 $ Direct Materials Direct Labor Variable MOH 65,000 0.50 702,000 780,000 5.40 6.00 Enter any number in the edit fields and then click Check Answer. Fixed MOH $ 2,782,000 $ 21.40 Total a narts

Answer 1

Incremental analysis 1 Particulars Variable cost Fixed Cost Total cost Make Difference Outsource $2,002,000 $2,600,000 $(598,000) $ 780,000 $ 590,000 190,000 $2,782,000 $3,190,000 $(408,000) If it is idle there will be decrease in operating income by $ 408000 Incremental analysis 2 Particulars Variable cost Fixed Cost Opportunity cost Total cost Make Difference Outsource $2,002,000 $2,600,000 $(598,000) $780,000 $ 590,000 $190,000 (578,000) $578,000 $2,782,000 $2,612,000 $ 170,000 If it used for produce ski boots its operating income will increase by $ 170000 >> Please provide feedback with UP VOTE.