Part 2

Wally World manufactures cross country skis. Its cost of manufacturing 5,000 bindings is as follows:

Direct materials

$44,000

Direct labor

8,500

Variable overhead

5,000

Fixed overhead

16,000

Total manufacturing costs for 5,000 bindings

$73,500

Wally World can purchase bindings from another manufacturer for $11.00 each. They would pay an additional $1.25 per unit to have the bindings shipped to its manufacturing plant. They would add their logo to each binding for an additional $0.70 per unit.   If Wally World purchases the bindings they can avoid fixed overhead costs of $7,500.

Required

Should Wally World continue to manufacture the bindings or purchase them from the other manufacturer? Show detailed calculations to support your decision.

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