4. Resource Spending Approach: Assume the decisions to make pool shades and trellises are considered to be a short-term decision and that Chandler would make these products one at a time when time is available, so as not to not delay any of the custom orders. Because there is excess capacity on current production equipment, the company wants to use a tactical decision (resource spending) approach to evaluate the decision to make the products. Exhibit 3 provides information about the cost to purchase additional resources. a. Compute the net change in cash flow of making and selling the full demand of pool shades. b. Compute the net change in cash flow of making and selling the full demand of trellises. c. Compute the net change in cash flow of making the full demand for both the pool shades and the trellises. d. Given the assumptions aforementioned (such as short-term and excess capacity), would Chandlers management choose to make either or both of the products? Explain your answer.

Exhibit 1. Existing Capacity Available and Used and Capacity Costs (Annual) Resource Practical Capacity Cost Driver Purchased Cost of Capacity Used Capacity 19,500 Design/Drafting 20,000 Design hours $500,000 Engineering 15,000 Engineering hours $750,000 14,750 Fabrication 40,000 39,000 Number of parts Square feet Powder coating 400,000 210,000 $30,000 $1,800,000 $756,000 $2,400,000 Job setups 640 Scheduling/setup General factory 750 80,000 Machine hours 64,000 Exhibit 2. Resource Needs for potential New Products Pool Shade Requirements Trellis Requirements Resource (Cost Level) Cost Driver Design/Drafting (product) Design hours Engineering (product) Engineering hours Number of parts 4 40 Fabrication (unit) 22 Powder coating (unit) Square feet 1,600 170 Scheduling/setup (unit) Job setups 1. General factory (unit) Machine hours 80 10 Desired Profit on Sales 0.30 Pool Shade $42,500 Selling price/unit Trellis $4,300 $700 Demand Pool shades 120 Material cost/unit $18,750 Demand Trellises 60 Exhibit 3. Purchase Price of Additional Capacity Capacity of next step Resource Cost Driver Cost of Next Step $50,000 2,000 Design hours 2,000 Engineering hours $110,000 3,000 Parts Design/Drafting Engineering Fabrication Powder coating Scheduling/setup General factory 20,000 Square feet $3,150 $100,000 $4,000 Job setups 5,000 2,000 Machine hours $36,000 Exhibit 1. Existing Capacity Available and Used and Capacity Costs (Annual) Resource Practical Capacity Cost Driver Purchased Cost of Capacity Used Capacity 19,500 Design/Drafting 20,000 Design hours $500,000 Engineering 15,000 Engineering hours $750,000 14,750 Fabrication 40,000 39,000 Number of parts Square feet Powder coating 400,000 210,000 $30,000 $1,800,000 $756,000 $2,400,000 Job setups 640 Scheduling/setup General factory 750 80,000 Machine hours 64,000 Exhibit 2. Resource Needs for potential New Products Pool Shade Requirements Trellis Requirements Resource (Cost Level) Cost Driver Design/Drafting (product) Design hours Engineering (product) Engineering hours Number of parts 4 40 Fabrication (unit) 22 Powder coating (unit) Square feet 1,600 170 Scheduling/setup (unit) Job setups 1. General factory (unit) Machine hours 80 10 Desired Profit on Sales 0.30 Pool Shade $42,500 Selling price/unit Trellis $4,300 $700 Demand Pool shades 120 Material cost/unit $18,750 Demand Trellises 60 Exhibit 3. Purchase Price of Additional Capacity Capacity of next step Resource Cost Driver Cost of Next Step $50,000 2,000 Design hours 2,000 Engineering hours $110,000 3,000 Parts Design/Drafting Engineering Fabrication Powder coating Scheduling/setup General factory 20,000 Square feet $3,150 $100,000 $4,000 Job setups 5,000 2,000 Machine hours $36,000