Question

Mountain RidesMountain Rides

manufactures snowboards. Its cost of making

19 comma 00019,000

bindings is as​ follows:

Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,000

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81,000

Variable manufacturing overhead. . . . . . . . . . . . . . . .

44,000

Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . .

81,000

Total manufacturing costs. . . . . . . . . . . . . . . . . . . .

$228,000

Cost per pair ($228,000 / 19,000). . . . . . . . . . . . . . . .

$12.00

Requirement 1.

Mountain Rides'Mountain Rides'

accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid

$ 2 comma 100$2,100

of fixed overhead. Prepare an analysis to show whether

Mountain RidesMountain Rides

should make or buy the bindings. ​(Enter a​ "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to​ buy.)

Incremental Analysis	Make	Buy (Outsource)
Outsourcing Decision	Bindings	Bindings	Difference
Variable Costs
Plus: Fixed Costs
Total cost of 19,000 bindings

​Decision:

▼

Buy the bindings.

Make the bindings.

Requirement 2. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute

$ 3 comma 100$3,100

to profit. Total fixed costs will be the same as if

Mountain RidesMountain Rides

had produced the bindings. Show which alternative makes the best use of

Mountain Rides'Mountain Rides's

​facilities: (a) make​ bindings, (b) buy bindings and leave facilities​ idle, or​ (c) buy bindings and make another product. ​(Enter a​ "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole​ dollar.)

		Buy (Outsource) Bindings
Incremental Analysis	(a) Make	(b) Leave	(c) Make
Outsourcing Decision	Binding	Facilities Idle	Another Product
Variable Costs
Plus: Fixed Costs
Total cost of 19,000 bindings
Less: Profit from another product
Net cost

​Decision:

▼

Continue to make the bindings.

Buy the bindings and use the facilities to make another product.

Buy the bindings and leave the facilities idle.

Answer 1

Requirement 1:

Incremental Analysis	Make	Buy (outsource)
Outsourcing Decision	Bindings	Bindings	Difference
Variable cost	147000	147000
Plus: Fixed cost	81000	(81000-2100) = 78900	-2100
Total cost of 19,000 bindings	228000	225900	-2100

As there is no further information about purchase price of binding, assumed that purchase cost of binding will be equal to the variable cost.

Decision: Buy the bindings as it will reduce the fixed cost of $ 2100.

Requirement 2:

		Buy (Outsource) Bindings
Incremental Analysis	Make	Leave	Make
Outsourcing Decision	Bindings	Facilities Idle	Another Product
Variable cost	147000	147000	147000
Plus: Fixed cost	81000	78900	81000
Total cost of 19,000 bindings	228000	225900	228000
Less: profit from another product	0	0	-3100
Net cost	228000	225900	224900

Decision: Buy the bindings and use the facilities to make another product.