Answered: 1. Mountain Fun's accountants predict…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Mountain Fun manufactures snowboards. Its cost of making 2,100 bindings is as follows: (Click the icon to view the costs.) Suppose Hemingway will sell bindings to Mountain Fun for $14 each. Mountain Fun would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.70 per binding. Read the requirements Requirement 1. Mountain Fun's accountants predict that purchasing the bindings from Hemingway will enable the company to avoid $1,800 of fixed overhead. Prepare an analysis to show whether Mountain Fun 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.) Difference Variable costs Binding costs Direct materials Direct labor Variable overhead Fixed costs Purchase price from Hemingway Transportation Logo Variable Costs Binding costs Direct materials Direct labor Variable overhead Make Bindings Fixed costs Purchase price from Hemingway Transportation 17510 3100 2050 1800 24460 Outsource Bindings Make Bindings Logo Expected profit from new product Expected net cost of obtaining 2,100 bindings Which alternative makes the best use of Mountain Fun's facilities? Decision Make the bindings. 17510 3100 2050 1800 29400 6300 1470 37170 24460 (Make Outsource) Total differential cost of 2,100 bindings Should Mountain Fun make or buy the bindings? Decision: Make the bindings. Requirement 2. The facilities freed by purchasing bindings from Hemingway can be used to manufacture another product that will contribute $2,700 to profit. Total fixed costs will be the same as if Mountain Fun had produced the bindings. Show which alternative makes the best use of Mountain Fun's facilities. (Only enter the net relevant costs. Enter all costs as positive values. Use a minus sign or parentheses for decreases to net.costs) Facilities Idle 17510 3100 2050 1800 -24460 Outsource Bindings 29400 6300 1470 12710 34470 Make New Product G 1800 (2700) 10010 Data table Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 2,100 bindings Requirements Print $ Done Print 17,510 3,100 2,050 6,500 $ 29,160 X 1 Mountain Fun's accountants predict that purchasing the bindings from Hemingway will enable the company to avoid $1,800 of fixed overhead. Prepare an analysis to show whether Mountain Fun should make or buy the bindings Done 2 The facilities freed by purchasing bindings from Hemingway can be used to manufacture another product that will contribute $2,700 to profit. Total fixed costs will be the same as if Mountain Fun had produced the bindings. Show which alternative makes the best use of Mountain Fun's facilities (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. - X Next

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