Making outsourcing decisionsCold Sports manufactures snowboards. Its cost of making 2,000 bindings is as follows: Suppose Topnotch will sell bindings to Cold Sports for $15 each. Cold Sports 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.RequirementsCold Sports’s accountants predict that purchasing the bindings from Topnotch will enable the company to avoid $2,300 of fixed overhead. Prepare an analysis to show whether Cold Sports should make or buy the bindings.The facilities freed by purchasing bindings from Topnotch can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Cold Sports had produced the bindings. Show which alternative makes the best use of Cold Sports’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. Direct materials$ 17,510Direct laborVariable overheadFixed overheadTotal manufacturing costs for 2,000 bindings2,6002,0607,000$ 29,170

Cost: The amount paid to purchase the asset, install it, and put it into operations, is referred to…

Answered: Direct materials $ 17,510 Direct labor…

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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Making outsourcing decisions

Cold Sports manufactures snowboards. Its cost of making 2,000 bindings is as follows:

Suppose Topnotch will sell bindings to Cold Sports for $15 each. Cold Sports 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

Cold Sports’s accountants predict that purchasing the bindings from Topnotch will enable the company to avoid $2,300 of fixed overhead. Prepare an analysis to show whether Cold Sports should make or buy the bindings.
The facilities freed by purchasing bindings from Topnotch can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Cold Sports had produced the bindings. Show which alternative makes the best use of Cold Sports’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.

Direct materials
$ 17,510
Direct labor
Variable overhead
Fixed overhead
Total manufacturing costs for 2,000 bindings
2,600
2,060
7,000
$ 29,170

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