The ski selected is a mass market ski with a special binding and will be sold fo
ID: 2387136 • Letter: T
Question
The ski selected is a mass market ski with a special binding and will be sold for $80 per pair. A $125000 fixed charge will be absorbed by the ski, however, to allocate a fair share of the company's present fixed cost to the new product.Using the estimated sales and production of 10000 pair of skis as the expected volume,
Direct labor $35
Direct material 30
Total overhead 15
Total cost $80
They discussed the purchasing of the binding from a subcontractor at $5.25 per binding, or $10.50 per pair with direct-labor and variable cost would be reduced by 10% and direct materials costs would be reduced by 20%.
The company has the option of making and buying at the same time. What would be your answer to number 3 if this alternative were considered? Show calculations to support your answer.
Explanation / Answer
sale
80
800000
Direct labor
35
350000
Direct material
30
300000
Total overhead
15
150000
Total variable cost
80
800000
contribution
0
0
Fixed cost
100000
Net income
-100000
sale
80
800000
Direct labor
31.5
315000
Direct material
24
240000
Total overhead
15
150000
Total variable cost
10.5
105000
contribution
81
810000
Fixed cost
-1
-100000
Net income
100000
-1100000
Maximum price for binding------------------
$9.50
If we produce we have to bear loss of $100,000,
binding we have to bear additional $10,000 also.
So making is the good decision.
sale
80
800000
Direct labor
35
350000
Direct material
30
300000
Total overhead
15
150000
Total variable cost
80
800000
contribution
0
0
Fixed cost
100000
Net income
-100000
sale
80
800000
Direct labor
31.5
315000
Direct material
24
240000
Total overhead
15
150000
Total variable cost
10.5
105000
contribution
81
810000
Fixed cost
-1
-100000
Net income
100000
-1100000
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