awnsers the bold question at the bottom please Company A makes downhill ski equipment. Assume...
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awnsers the bold question at the bottom please
Company A makes downhill ski equipment. Assume that company B has offered to produce ski pole for company A for $18 per pair. Company A needs 100,000 pairs of poles per period. Company A can avoid $125,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Company A currently has the following costs at a production level of 100,000 pairs of poles.
| Manufacturing Costs | Total Cost | Cost per pair (100,000 pairs) |
| Direct Materials | $750,000 | $7.50 |
| Direct Labor | $80,000 | $0.80 |
| Variable MOH | $520,000 | $5.20 |
| Fixed MOH | $650,000 | $6.50 |
| Total | $2,000,000 | $20.00 |
1) Should company A outsource ski pole production if the next best use of freed capacity is to leave it idle? What affect will outsourcing have on company A operating income?
2) If the freed capacity could be used to produce ski boots that would provide $500,000 of operating income, should company A outsource ski pole production?
- Assume company As sales budget shows projected sales of 32,000 cases in April and 40,000 cases in May. The companys manager would like to maintain ending safety stock equal to 10% of the next months projected sales. How many units should be produced in April?
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