Winter Sports makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for...

  

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Winter Sports makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for Winter Sports for $24 per pair. Winter Sports needs 110,000 pairs of poles per period. Winter Sports can only avoid $100,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Winter Sports currently has the following costs at a production level of 110,000 pairs of poles: (Click the icon to view the table.) 1. Should Winter Sports outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Sports' operating income? 2. If the freed capacity could be used to produce ski boots that would provide $1,265,000 of operating income, should Winter Sports outsource ski pole production? ..... 1. Should Winter Sports outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Sports' operating income? Begin by preparing the incremental analysis for outsourcing decision. (Use a minus sign or parentheses in the Difference column if the cost to make exceeds the cost to outsource.) Incremental Analysis Outsourcing Decisions Variable costs: Plus: Fixed costs Total cost of producing 110,000 pairs of poles Make Ski Poles Outsource Ski Poles Difference Manufacturing Costs Direct Materials Direct Labor Variable MOH Fixed MOH Total Total Cost $ 770,000 $ 77,000 Cost per pair (110,000 pairs) 638,000 682,000 $ 2,167,000 $ 7.00 0.70 5.80 6.20 19.70 Winter Sports makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for Winter Sports for $24 per pair. Winter Sports needs 110,000 pairs of poles per period. Winter Sports can only avoid $100,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Winter Sports currently has the following costs at a production level of 110,000 pairs of poles: (Click the icon to view the table.) 1. Should Winter Sports outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Sports' operating income? 2. If the freed capacity could be used to produce ski boots that would provide $1,265,000 of operating income, should Winter Sports outsource ski pole production? ..... 1. Should Winter Sports outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Winter Sports' operating income? Begin by preparing the incremental analysis for outsourcing decision. (Use a minus sign or parentheses in the Difference column if the cost to make exceeds the cost to outsource.) Incremental Analysis Outsourcing Decisions Variable costs: Plus: Fixed costs Total cost of producing 110,000 pairs of poles Make Ski Poles Outsource Ski Poles Difference Manufacturing Costs Direct Materials Direct Labor Variable MOH Fixed MOH Total Total Cost $ 770,000 $ 77,000 Cost per pair (110,000 pairs) 638,000 682,000 $ 2,167,000 $ 7.00 0.70 5.80 6.20 19.70

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