Acct310 Unit 3
The ski selected is a mass-market ski with a special binding. It will be sold to wholesalers for $80 per pair. Because of availability capacity, no additional fixed charges will be incurred to produce the skis. A $100,000 fixed charge will be absorbed by the skis, however, to allocate a fair share of the company’s present fixed costs to the new product.
Using the estimated sales and production of 10,000 pair of skis as the expected volume, the accounting department has developed the following cost per pair of skis and bindings:
Direct Labor: $35
Direct Material: $30
Total Overhead: $15
Total: $80
Ski Pro has approached a subcontractor to discuss the possibility of purchasing the bindings. The purchase price of the bindings from the subcontractor would be $5.25 per binding, or $10.50 per pair. If the Ski Pro Corporation accepts the purchase proposal, it is predicted that direct-labor and variable-overhead costs would be reduced by 10% and direct-material costs would be reduced by 20%.
1. Should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
labor @ $35/pr x 10,000 prs = $350,000 material @ $30/pr x 10, 000prs = $300,000 overhead @ $15/pr x 10,000prs = $150,000 total cost $800.000 ten percent labor/ 350,000 x .10 = $35,000 ten percent overhead/ 150,000 x .10 = $15,000 twenty percent materials/ 300,000 x.20 = $60,000
Total savings $110,000
Bindings @ $10.50/pr x 10,000prs = $105,000
Net savings $5,000
Based on the small percentage that would be saved $.50/pr they should make the bindings.
2. What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
$ 7.50/pr this would save $35,000/ $3.50/pr
3. Instead of sales of 10,000 pair of skis, revised estimates show sales volume at 12,500 pair. At this new volume, additional equipment, at an annual rental of $10,000 must be
Using the estimated sales and production of 10,000 pair of skis as the expected volume, the accounting department has developed the following cost per pair of skis and bindings:
Direct Labor: $35
Direct Material: $30
Total Overhead: $15
Total: $80
Ski Pro has approached a subcontractor to discuss the possibility of purchasing the bindings. The purchase price of the bindings from the subcontractor would be $5.25 per binding, or $10.50 per pair. If the Ski Pro Corporation accepts the purchase proposal, it is predicted that direct-labor and variable-overhead costs would be reduced by 10% and direct-material costs would be reduced by 20%.
1. Should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
labor @ $35/pr x 10,000 prs = $350,000 material @ $30/pr x 10, 000prs = $300,000 overhead @ $15/pr x 10,000prs = $150,000 total cost $800.000 ten percent labor/ 350,000 x .10 = $35,000 ten percent overhead/ 150,000 x .10 = $15,000 twenty percent materials/ 300,000 x.20 = $60,000
Total savings $110,000
Bindings @ $10.50/pr x 10,000prs = $105,000
Net savings $5,000
Based on the small percentage that would be saved $.50/pr they should make the bindings.
2. What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
$ 7.50/pr this would save $35,000/ $3.50/pr
3. Instead of sales of 10,000 pair of skis, revised estimates show sales volume at 12,500 pair. At this new volume, additional equipment, at an annual rental of $10,000 must be