Answer Happy

Mountain Fun manufactures snowboards. Its cost of making 2,100 bindings is as follows: (Click the icon to view the costs.) Suppose Monroe 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 $0.40 per binding. Read the requirements. Requirement 1. Mountain Fun's accountants predict that purchasing the bindings from Monroe will enable the company to avoid $2,000 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.) Make Bindings Outsource Bindings Difference (Make-Outsource) X Binding costs Data table Variable costs: Direct materials $ 17,550 Direct labor Variable overhead 3,500 2,040 Fixed costs 6,600 Purchase price from Monroe 29,690 Transportation Logo Total differential cost of 2,100 bindings Requirements 1. Mountain Fun's accountants predict that purchasing the bindings from Monroe will enable the company to avoid $2,000 of fixed overhead. Prepare an analysis to show whether Mountain Fun should make or buy the bindings. 2. The facilities freed by purchasing bindings from Monroe can be used to manufacture another product that will contribute $3,200 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 Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 2,100 bindings Print Done $