Problem:
Using the estimated sales and production of 10,000 pairs 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
Should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
What would be the maximum purchase price acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
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.) Under these circumstances, should the Ski Pro Corporation make or buy the bindings? Show calculations to support your answer.
What qualitative factors (that is, issues with vendors, customers, or within the product itself) should the Ski Pro Corporation consider in determining whether they should make or buy the bindings?