Learning Objective 4 P25-25A Making outsourcing decisions Outdoor Life manufactu

Question

Learning Objective 4 P25-25A Making outsourcing decisions Outdoor Life manufactures snowboards. Its cost of making 2,000 bindings is as follows: 1. $(10,360) Direct materials Direct labor Variable overhead Fixed overhead Total manufacturing costs for 2,000 bindings $17,550 3,400 2,040 6,300 29,290 Suppose Lancaster will sell bindings to Outdoor Life for $14 cach. Outdoor Life 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.

Explanation / Answer

1. Statement of Comparative Cost Benefit

Thus, Outdoor Life should manufacture the bindings inhouse.

2.

Statement of Comparative Cost Benefit

Making in house leads to least cost.

Make $ Buy $ Direct Material 8.775 Purchase Cost 14 Direct Labor 1.7 Transportation Cost 3 Variable Overheads 1.02 Avoidable Fixed Overhead 1.05 Total 12.545 17

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