Krass Snowboard Mfg. Inc. manufactures snowboards. Its cost of making 3,500 bindings is
as follows:
| Variable manufacturing overhead | 4,500 |
| Fixed manufacturing overhead | 13,300 |
| Total manufacturing costs | $56,000 |
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.
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