Purpose an analysis - buy bindings and leave facilities idle

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Reference no: EM139949

X-Perience manufacturers snowboards. Its cost of making 1,700 bindings is as follows:

Direct materials	$17,600
Direct labor	3,100
Variable overhead	2,080
Fixed overhead	6,600
Total manufacturing costs for 1,700 bindings	$29,380

Suppose Livingston will sell bindings to X-Perience for $14 each. X-Perience would pay $2 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.60 per binding.

Required:

a) X-Perience's accountants predict that purchasing the bindings from Livingston will enable the company to avoid $1,800 of fixed overhead. Prepare an analysis to show whether X-Perience should make or buy the bindings.

b) The facilities freed by purchasing bindings from Livingston can be used to manufacture another product that will contribute $2,800 to profit. Total fixed costs will be the same as if X-Perience had produced the bindings. Show which alternative makes the best use of X-Perience's facilities: a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.

Reference no: EM139949

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