Krass Snowboard Mfg.Inc.manufactures snowboards.Its cost of making 3,500 bindings is
as follows:

Suppose O'Brien will sell bindings to Krass for $15 each.Krass will pay $1.50 per unit to transport the bindings to its manufacturing plant,where it will add its own logo at a cost of $0.80 per binding.Krass' accountants predict that purchasing the bindings from O'Brien will enable the company to avoid $5,500 of fixed overhead.The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute $6,500 to profit.Total fixed costs will be the same as if Krass had produced the bindings.Show which alternative makes the best use of Krass' facilities: (a)make bindings, (b)buy bindings and leave facilities idle,or (c)buy bindings and make another product.

Question

Krass Snowboard Mfg.Inc.manufactures snowboards.Its cost of making 3,500 bindings is
as follows:
  
Suppose O'Brien will sell bindings to Krass for $15 each.Krass will pay $1.50 per unit to transport the bindings to its manufacturing plant,where it will add its own logo at a cost of $0.80 per binding.Krass' accountants predict that purchasing the bindings from O'Brien will enable the company to avoid $5,500 of fixed overhead.The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute $6,500 to profit.Total fixed costs will be the same as if Krass had produced the bindings.Show which alternative makes the best use of Krass' facilities: (a)make bindings, (b)buy bindings and leave facilities idle,or (c)buy bindings and make another product.

Quizplus · Accepted Answer

The Answer of Krass Snowboard Mfg.Inc.manufactures snowboards.Its cost of making 3,500 bindings is
as follows:
  
Suppose O'Brien will sell bindings to Krass for $15 each.Krass will pay $1.50 per unit to transport the bindings to its manufacturing plant,where it will add its own logo at a cost of $0.80 per binding.Krass' accountants predict that purchasing the bindings from O'Brien will enable the company to avoid $5,500 of fixed overhead.The facilities freed by purchasing bindings from O'Brien can be used to manufacture another product that will contribute $6,500 to profit.Total fixed costs will be the same as if Krass had produced the bindings.Show which alternative makes the best use of Krass' facilities: (a)make bindings, (b)buy bindings and leave facilities idle,or (c)buy bindings and make another product.