Question

Cool Boards manufactures snowboards. Its cost of making 30,125 bindings is as follows:
Direct materials...................................................................................................... $ 25,000
Direct labor............................................................................................................ 83,000
Variable manufacturing overhead.......................................................................... 50,000
Fixed manufacturing overhead.............................................................................. 83,000
Total manufacturing costs...................................................................................... $ 241,000
Cost per pair ($ 241,000 ÷ 30,125)........................................................................ $ 8.00

Suppose an outside supplier will sell bindings to Cool Boards for $ 17 each. Cool Boards will pay $ 1.00 per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of $ 0.50 per binding.

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



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  • CreatedAugust 27, 2014
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