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Managerial Accounting: ACCT310 - 1304A - 03
Unit 3 IP
October 28, 2013
AIU Online
1. Should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
In order to make the bindings, it will cost 80.00, but if Minnetonka buys them, it will cost $79.50. Minnetonka would come out cheaper by buying the bindings.
Direct labor 35.00
Direct material 30.00
Overhead 15.00
Total 80.00
If the Ski Pro Corporation buys the bindings, it will cost 79.50
Direct labor $35.00 -10% $35.00-($35.00*0.1) = $31.50
Direct material $30.00 -20% $30.00-($30.00*0.2) = $24.00
Overhead $15.00 -10% $15.00-($15.00*0.1) = $13.50 Subtotal $69.00 Bindings $10.50 $79.50
2. What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
Usually companies that are really good competitors, will maximize their profits by producing the quantity where the cost is usually less than or equal to the revenue that is being brought in. Here in Minnetonka’s case, it will cost $69.00 a pair if brought. The costs for the bindings are not or should not be more than the price per pair, which is $80.00. Which means that the maximum allowable price for the bindings should not exceed the sale price which is $80.00 subtracted from the $69.00 which is the bought manufacturing, gives you a total of $11.00. So the maximum purchase price that would be acceptable is $11.00 for the bindings.
3. Instead of sales of 10,000 pairs of skis, revised estimates show sales volume at 12,500 pairs. At this new volume, additional equipment, at an annual rental of $10,000 must be acquired to manufacture the bindings. This incremental cost would be the only additional fixed cost required even if sales increased to 30,000 pairs. (This 30,000 level is the goal for the third year of production.)
Unit 3 IP
October 28, 2013
AIU Online
1. Should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
In order to make the bindings, it will cost 80.00, but if Minnetonka buys them, it will cost $79.50. Minnetonka would come out cheaper by buying the bindings.
Direct labor 35.00
Direct material 30.00
Overhead 15.00
Total 80.00
If the Ski Pro Corporation buys the bindings, it will cost 79.50
Direct labor $35.00 -10% $35.00-($35.00*0.1) = $31.50
Direct material $30.00 -20% $30.00-($30.00*0.2) = $24.00
Overhead $15.00 -10% $15.00-($15.00*0.1) = $13.50 Subtotal $69.00 Bindings $10.50 $79.50
2. What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
Usually companies that are really good competitors, will maximize their profits by producing the quantity where the cost is usually less than or equal to the revenue that is being brought in. Here in Minnetonka’s case, it will cost $69.00 a pair if brought. The costs for the bindings are not or should not be more than the price per pair, which is $80.00. Which means that the maximum allowable price for the bindings should not exceed the sale price which is $80.00 subtracted from the $69.00 which is the bought manufacturing, gives you a total of $11.00. So the maximum purchase price that would be acceptable is $11.00 for the bindings.
3. Instead of sales of 10,000 pairs of skis, revised estimates show sales volume at 12,500 pairs. At this new volume, additional equipment, at an annual rental of $10,000 must be acquired to manufacture the bindings. This incremental cost would be the only additional fixed cost required even if sales increased to 30,000 pairs. (This 30,000 level is the goal for the third year of production.)