Principal Managerial Accounting CH 10

Data table Direct materials 17,560 2,800 Direct labor Variable overhead Fixed overhead 2,080 6,400 28,840 Total manufacturing costs for 1,800 bindings Requirements 1. 2. Cool Boards' accountants predict that purchasing the bindings from Witherspoon will enable the company to avoid $2,100 of fixed overhead. Prepare an analysis to show whether Cool Boards should make or buy the bindings. The facilities freed by purchasing bindings from Witherspoon can be used to manufacture another product that will contribute $3,000 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. Cool Boards manufactures snowboards. Its cost of making 1,800 bindings is as follows: E: (Click the icon to view the costs.) Suppose Witherspoon will sell bindings to Cool Boards for $12 each. Cool Boards would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.40 per binding. Read the requirements. Requirement 1. Cool Boards' accountants predict that purchasing the bindings from Witherspoon will enable the company to avoid $2,100 of fixed overhead. Prepare an analysis to show whether Cool Boards should make or buy the bindings. (Only enter the net relevant costs. For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the bindings in-house.) Make Outsource Difference Binding costs Bindings Bindings (Make-Outsource) Variable costs: Direct materials Direct labor MULL Variable overhead Fixed costs Purchase price from Witherspoon Transportation Logo Total differential cost of 1,800 bindings Should Cool Boards make or buy the bindings? Decision: Requirement 2. The facilities freed by purchasing bindings from Witherspoon can be used to manufacture another product that will contribute $3,000 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. (Only enter the net relevant costs. Enter all costs as positive values. Use a minus sign or parentheses for decreases to net costs.) Outsource Bindings Make Facilities Make New Binding costs Bindings Idle Product Variable Costs: Direct materials Direct labor Variable overhead Fixed costs Purchase price from Witherspoon Transportation Logo Expected profit from new product Expected net cost of obtaining 1,800 bindings Which alternative makes the best use of Cool Boards' facilities? Decision