Question details

25_Activity-Based Costing & Process Costing
$ 12.00

Deliverable Length: Excel spreadsheet and 2-3 pages  APA FORMAT W/REFERENCE PAGE 



Consider the following scenario:

The Ski Pro Corporation, which produces and sells to wholesalers a highly
successful line of water skis, has decided to diversify to stabilize sales
throughout the year. The company is considering the production of cross-country
skis.

 

After considerable research, a cross-country ski line has been developed.
Because of the conservative nature of the company management, however,
Minnetonka’s president has decided to introduce only one type of the new ski for
this coming winter. If the product is a success, further expansion in future
years will be initiated.

 

The ski selected is a mass-market ski with a special binding. It will be sold
to wholesalers for $80 per pair. Because of availability capacity, no additional
fixed charges will be incurred to produce the skis. A $100,000 fixed charge will
be absorbed by the skis, however, to allocate a fair share of the company’s
present fixed costs to the new product.

 

Using the estimated sales and production of 10,000 pairs of skis as the
expected volume, the accounting department has developed the following cost per
pair of skis and bindings:

 

Direct Labor: $35
Direct Material: $30
Total Overhead:
$15
Total: $80

 

Ski Pro has approached a subcontractor to discuss the possibility of
purchasing the bindings. The purchase price of the bindings from the
subcontractor would be $5.25 per binding, or $10.50 per pair. If the Ski Pro
Corporation accepts the purchase proposal, it is predicted that direct-labor and
variable-overhead costs would be reduced by 10% and direct-material costs would
be reduced by 20%.

 

Write a 1–2 page paper, and create a spreadsheet that answers the
following questions:

 

  1. Should the Ski Pro Corporation make or buy the bindings? Show calculations
    to support your answer.

 

  1. What would be the maximum purchase price acceptable to the Ski Pro
    Corporation for the bindings? Support your answer with an appropriate
    explanation.

 

  1. 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.

 

  1. 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?

 

 

Grading Criteria

 

Percentage

 

Should the Ski Pro Corporation make or buy the bindings?

 

25%

 

What would be the maximum purchase price acceptable to the Ski Pro
Corporation for the bindings?

 

20%

 

Under these circumstances, should the Ski Pro Corporation make or buy the
bindings?

 

25%

 

What qualitative factors should the Ski Pro Corporation consider in
determining whether they should make or buy the bindings?

 

 

 

 

Direct Labor: $35
Direct Material: $30
Total Overhead:
$15
Total: $80

Write a 1–2 page paper, and create a spreadsheet that answers the
following questions:

 

Should the Ski Pro Corporation make or buy the bindings? Show calculations
to support your answer.

 

What would be the maximum purchase price acceptable to the Ski Pro
Corporation for the bindings? Support your answer with an appropriate
explanation.

 

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.

 

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?

Available solutions