Costs Direct materials.... Direct labour.... Variable manufacturing overhead $ 17,520 3,100 2,080 6,800 Fixed manufacturing overhead $ 29,500 Total manufacturing costs... $ 16.39 Cost per pair ($29,500 1,800) Requirements 1.Krass's accountants predict that purchasing the bindings from O'Brien will enable the company to avoid $3,200 of fixed overhead. Prepare an analysis to show whether Krass should make or buy the bindings. 2.The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Krass had produced the bindings. Show which alternative makes the best use of Krass's facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. Total cost: Krass Snowboard Mfg. Inc. Outsourcing Analysis Make Binding Buy Bindings Cost to Make Minus Cost to Buy Direct materials Direct labour 17,520 17,520 3,100 3,100 Variable overhead 2,080 2,080 Fixed overhead 6,800 3,200 3,600 Purchase price from O'Brien 25,200 (25,200) Transportation 1,800 (1,800) Fixed overhead 6,800 3,200 3,600 Purchase price from O'Brien 25,200 (25,200) Transportation 1,800 (1,800) 360 Logo (360) 29,500 30,560 (1,060) Total cost of 1,800 bindings Decision: Make the bindings Requirement 2. The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Krass had produced the bindings. Show which alternative makes the best use of Krass's facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. (If a box is not used in the table, leave the box empty; do not enter a zero. Use a minus sign or parentheses for subtracting numbers that are typically shown enclosed in parentheses in an outsourcing analysis.) Krass Snowboard Mfg. Ltd. Best Use of Facilities Analysis Direct materials Direct labour Variable overhead Buy Bindings Make Bindings Leave Facilities Idle Make Another Product 17,520 3,100 2,080 Variable overhead 2,080 Fixed overhead 6,800 3,200 6,800 Purchase price from O'Brien 25,200 25,200 Transportation 1,800 1,800 Logo 360 360 Expected profit from other product (3100) 29,500 30,560 31,060 Expected net cost Decision: Continue to make the bindings