Direct materials Direct labor Variable overhead $ 17,590 3,200 2,080 6,300 Fixed overhead Total manufacturing costs for 1,900 bindings $ 29,170
Direct materials Direct labor Variable overhead $ 17,590 3,200 2,080 6,300 Fixed overhead Total manufacturing costs for 1,900 bindings $ 29,170
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Making outsourcing decisions
Snow Ride manufactures snowboards. Its cost of making 1,900 bindings is as follows;
Suppose Livingston will sell bindings to Snow Ride for $13 each. Snow Ride would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.50 per binding.
Requirements
- Snow Ride’s accountants predict that purchasing the bindings from Livingston will enable the company to avoid $2,100 of fixed
overhead . Prepare an analysis to show whether Snow Ride should make or buy the bindings. - The facilities freed by purchasing bindings from Livingston can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Snow Ride had produced the bindings. Show which alternative makes the best use of Snow Ride’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.
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