ACTIVITY BASED COSTING

Activity Based Costing

Activity-Based Costing & Process Costing Assignment

The Ski Pro Corporation case

Make or Buy Decision

Variable Overhead Costs:Fixed O/H = $100,000 Fixed O/H per pair = $100,000 / 10,000 = $10

Since Total OH = $15, therefore Variable OH Cost = $15 - $10 = $5

Alternative 1: Make bindings

Sales

80.00

Direct labor

35.00

Direct material

30.00

Variable Overhead

5.00

Total Variable Costs

70.00

Contribution Margin`

10.00

Contribution Margin %

12.5%

Alternative 2: Subcontract bindings

Sales

80.00

Direct labor

31.50

Direct material

24.00

Outsourced material

10.50

Variable Overhead

4.50

Total Variable Costs

70.50

Contribution Margin`

9.50

Contribution Margin %

11.9%

After analyzing the above calculation, Ski Pro Corporation should make the bindings since if they make the bindings, the contribution margin would be $10 per pair, while if the bindings were ...