Product m,x decision (Adapted from CMA, June 1990) Sportway, Inc is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60% of Sportway's products are pur chased from other companies while the remainder of the products are manufac¬ tured by Sportway. The company has a plastics department that is currently mnn«nm rm^ |m°uded f,Shin8 tackle boXeS- SP°rtwaV is ab|e to manufacture and sell 8,000 tackle boxes annually, making full use of its direct labor capacity at available work stations The following are the selling price and costs associated with Sportway s tackle boxes.

Because Sportway believes it could sell 12,000 tackle boxes if it had suffi¬ cient manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to 9000 tackle boxes per year at a price of $68 per box delivered to Sportway's facility.
Bart Johnson, Sportway's product manager, has suggested that the company could make better use of its plastics department by manufacturing skateboards. To support his position, Johnson has a market study that indicates an expanding market for skateboards and a need for additional suppliers. Johnson believes that Sportway could expect to sell 17,500 skateboards annually at a price of $45.00 per skateboard. Johnson's estimate of the costs to manufacture the skateboards is presented below.

In the plastics department, Sportway uses direct labor hours as the cost driver for manufacturing support costs. Included in the manufacturing support for the current year is $50,000 of factory-wide, fixed manufacturing support that has been allocated to the plastics department. For each unit of product that Sportway sells, regardless of whether the product has been purchased or is manufactured by Sportway, there is an allocated $6 fixed support cost per unit for distribution that is included in the selling and administrative cost for all products. Total selling and administrative costs for the purchased tackle boxes would be $10 per unit.
REQUIRED To maximize the company's profitability, prepare an analysis based on the data presented that will show which product or products Sportway, Inc. should manu¬ facture and/or purchase and will show the associated financial impact. Support your answer with appropriate calculations.(LO 2, 3)

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Selling price per box Costs per box: $86.00 Molded plastic $ 8.00 Hinges, latches, handle 9.00 Direct labor ($15/hour) 18.75 Manufacturing support 12.50 Selling and administrative 17.00 65.25 Profit per box $20.75