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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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

  1. 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.
  2. 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.
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
Transcribed Image Text: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
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