Based on the below calculation I’ve resolved that the best decision for the Ski Pro Corporation would be to purchase the bindings as opposed to making them. If they were to purchase it would cost them $79.50 per pair. And in the other hand if they make them it would cost them $ 80.00 per pair. Therefore even though the savings are only $.050 from a business perspective it would make sense to buy the bindings instead of making them.
Direct Labor $ 35.00 - 10%
35 - (35 x 0.1) 31.50
Direct material $ 30.00 -20%
30 - (30 x .2) 24.00
Overhead $ 15.00 -10%
15 - (15 x .1) 13.50
$ 69.00 plus bindings $ 10.50 would give a total of $ 80.00/ $ 79.50
What would be the (MPP) acceptable to the Ski Pro Corporation for the bindings? Support your answer with an appropriate explanation.
In order to determine the most acceptable MPP for the bindings Ski Pro Corp would need to capitalize on proceeds by manufacturing only the amount of products below or equivalent to the proceeds generated. Since each pair will cost $ 69.00 to purchase the most favorable cost for the bindings should not be more than the sales price per ski of $80.00. Therefore, sales price $ 80-69 (cost per unit) would equal to 11. Based on the above $11.00 should be the Maximum Purchase Price for the bindings.
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.
In view of Ski Pro’s accrual in supplementary costs such as rental and other production related expenses I believe that as long as the cost per unit remains less than what it would cost to manufacture the firm should still purchase the bindings.
12, 500.00 x 80 = $1M 12500 X 79.5 = $993,750
+ $10k (Rental) No Rental = $1.01M = $993,750
30,000.00 x 80 = $2.4M 30000 x 79.5 = $2,385,000
+ $10k (Rental) No Rental = $2.41M = $2,385,000
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?
There various qualitative factors worth considering when determining whether Ski Pro Corporation should buy or make the bindings. For instance, if the firm were to manufacture the bindings the firm would have total control over the merchants and would be able to eliminate the need to work with subcontractors. However, if the firm purchases the bindings prior to first estimating prospect sales and don’t sell the presume amount of skis envisioned the firm would have to take in the cost of surplus bindings. This is risk that should not be taken lightly by any firm.
