The Ski Pro Corporation

The Ski Pro Corporation

Introduction

The company Ski Pro must primarily choose that the company should consider the decision to buy or whether to make the bindings. In order to make the decision the company should consider looking at the cost which is avoidable and then contrast or evaluate them against the purchase cost of the bindings. The cost that is avoidable must be analyzed first due to the reason that this cost does not incur in case when bindings are purchased and count as cost saved. Against the saved costs, the company could invest purchasing more bindings. Moreover, in case of higher savings, it would be optimum to buy the bindings. If the costs are lower, if Ski Corporation making that will be beneficial for them. Preventable costs are expenditures that can be removed if anoption to revise the project or business (Vance, 2003). Variable cost can be reduced but, most of costs which is fixed would remain unchanged. In this situation, the cost that is avoidable would be the reduced from the costs in case of buying the bindings and not making.

Discussion

Calculations:

Requirement no: 1 and 2

•Direct material: 10% * 35 = $ 3.5, reduced by 10%, as it is reflective of costs

•Direct labor: 20% * 30 = $ 6, reduction by 20%, reflective due to reduction in labor cost

•Variable Overhead: 10% reduction in Cost of variable overheads.

Initialy, find out the per unit V.O.H, which is determined according to the quantity produced ($15 * 10,000 = $150,000). The given cost of F.O.H = $100,000, the resulting equation would factor the V.O.H, which is 150,000 - 100,000= $50,000 and the V.OH/unit is $5.

Reduction in V.O.H 5 x10% = 0.50

Theavoidable costs in total are

Direct material = 3.50

Direct labor = 6.00,

V.O.H = 0.50,

Sum = 10.00

The bindings purchased from outsource is ...