(L.OBJ. 4) Making outsourcing decisions [20—30 min] X-Perience manufactures snowboards....

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

X-Perience manufactures snowboards. Its cost of making 1,700 bindings is as follows:

Suppose Livingston will sell bindings to X-Perience for $14 each. X-Perience would pay $2 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. X-Perience’s accountants predict that purchasing the bindings from Livingston will enable the company to avoid $1,800 of fixed overhead. Prepare an analysis to show whether X-Perience should make or buy the bindings.

2. The facilities freed by purchasing bindings from Livingston can he used to manufacture another product that will contribute $2,800 to profit. Total fixed costs will be the same as if X-Perience had produced the bindings. Show which alternative makes the best use of X-Perience’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.