Requirement 1. Cool Boards' accountants predict that purchasing the bindings from Lewis will enable the company to avoid $1,800 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.) Variable costs: Direct materials Direct labor Variable overhead Binding costs Fixed costs Purchase price from Lewis Transportation Logo Total differential cost of 1,800 bindings Should Cool Boards make or buy the bindings? Decision: Make Bindings Outsource Bindings Difference (Make-Outsource) Data table Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 1,800 bindings Print Done $ 17,550 2,600 2,120 6,600 28,870 - X Requirement 2. The facilities freed by purchasing bindings from Lewis can be used to manufacture another product that will contribute $3,500 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)

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:Requirement 2. The facilities freed by purchasing bindings from Lewis can be used to manufacture another product that will contribute $3,500 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.) Variable Costs: Direct materials Direct labor Variable overhead Fixed costs Binding costs Purchase price from Lewis Transportation Decision: Make Bindings Logo Expected profit from new product Expected net cost of obtaining 1,800 bindings Which alternative makes the best use of Cool Boards' facilities? Outsource Bindings Facilities Idle Make New Product Data table Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 1,800 bindings Print Done $ $ 17,550 2,600 2,120 6,600 28,870 X

Transcribed Image Text:Cool Boards manufactures snowboards. Its cost of making 1,800 bindings is as follows: (Click the icon to view the costs.) Suppose Lewis will sell bindings to Cool Boards for $16 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 $0.70 per binding. Read the requirements. Requirement 1. Cool Boards' accountants predict that purchasing the bindings from Lewis will enable the company to avoid $1,800 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.) Variable costs: Direct materials Direct labor Variable overhead Binding costs Fixed costs Purchase price from Lewis Transportation Logo Total differential cost of 1,800 bindings Should Cool Boards make or buy the bindings? Decision: Make Bindings Outsource Bindings C Difference (Make-Outsource) Data table Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 1,800 bindings Print Done $ $ 17,550 2,600 2,120 6,600 28,870 X Requirement 2. The facilities freed by purchasing bindings from Lewis can be used to manufacture another product that will contribute $3,500 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.)

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