1. Should the Minnetonka Corporation make or buy the bindings? Answer: It would be less expensive to BUY the bindings.
Total: $69.00 + $10.50 = $79.50 per unit
2. What would be the maximum purchase price acceptable to the Minnetonka Corporation for the bindings? Answer: $10.99 is the theoretical maximum purchase price. A price of $10.99 per pair of bindings would result in a total cost of $79.99 per ski. This is one cent less than the $80.00 cost to make the entire ski in house.
3. Revised estimates show sales volume at 12,500 pair. At this new volume, additional equipment, at an annual rental of $10,000 must be acquired. The solution, in this scenario would be for Minnetonka Corporation to BUY bindings since this would result in the lowest total cost. A decision by Minnetonka Corporation to BUY bindings would cost Minnetonka less money. Please see the analysis below:
Total: $80 x 12,500 [units] = $1,000,000
However, if the annual unit volume were 30,000, the decision would be to BUY the bindings. Buying would be $25,000 less expensive. Here is that calculation:
Make = $10,000 + ($80 x 30,000 = $2,410,000
Buy = ($79.50 x 30,000) = $2,385,000
4. Non-quantifiable factors the Minnetonka Corporation should consider in determining whether they should make or buy the bindings include:
The experience of the supplier offering the bindings.
Their capacity to keep up with demand
Their ability to deliver products on time