(L.OBJ. 4) Making outsourcing decisions [20—30 min] Wild Ride manufactures snowboards....

(L.OBJ. 4) Making outsourcing decisions [20—30 min]

Wild Ride manufactures snowboards. Its cost of making 1,800 bindings is as follows:

Suppose Lewis will sell bindings to Wild Ride for $15 each. Wild Ride 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.

Requirements

1. Wild Ride’s accountants predict that purchasing the bindings from Lewis will enable the company to avoid $2,600 of fixed overhead. Prepare an analysis to show whether Wild Ride should make or buy the bindings.

2. The facilities freed by purchasing bindings from Lewis can he used to manufacture another product that will contribute $2,600 to profit. Total fixed costs will be the same as if Wild Ride had produced the bindings. Show which alternative makes the best use of Wild Ride’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.