Interior Dental Supply Inc. (Interior) is a locally owned and operated company. They are trusted by most dentists in the region and with over 70 years of ownership by the Bridge family who are well respected in the community.

Along with their dental supplies warehouse operation, Interior also has its own dental laboratory which produces a variety of custom fit dental supplies including crowns and dental implants. All items are custom made after an order is made and sales is equal to production with no finished goods inventory.

The President of Interior, Roger Bridge has been trying, unsuccessfully, to increase the size and volume of crowns and dental implant production but has net with serious competition from larger national competitors who have established a standard of four-day turnaround from order to customer delivery.

At the recent Pacific Dental Conference in Vancouver, a sales representative from the Sunflower Dental Lab Co. of Guangdong, China talked to Roger offering to supply Interior access to their vast product lines if they agree to close their local dental lab facility and transfer all of their crown and dental implant production to them. This deal would last for two years with current prices locked for the duration as well as a delivery time of four days or less via expedited air shipping which averages 15% of the purchase price of each unit delivered.

If Roger accepts Sunflowers offer and closes Interiors lab, the current equipment used in Interior's lab would be donated to the local science center as it has no sales value and the lab space would be converted back to warehouse space for a total cost of $7,000. The part time lab supervisor, who has been considering retirement for several years now, would be encouraged to do so. The current lab is part of Interiors warehouse facility and all fixed manufacturing overhead, except for the lab supervisors salary, is allocated to the lab based on the square foot size of the lab. The remaining part time staff would be moved to open positions in other areas of Interiors operations.

Currently, Interior sells all products for a 100% markup on total costs (for example: if the total cost is $100/unit, it would have a selling price of $200/unit)

Required

Roger has asked you to analyze the impact this would have on the Gold Crown product line.

B) Based on your results in Part A above, provide Roger with the following:

1) your Quantitative analysis and recommendation

2) a Qualitative analysis that contains a minimum of 1 positive and 1 negative issue about this business opportunity

Expected Sales Direct materials Direct labor Variable MOH Lab Supervisor Salary Fixed MOH 5,480 units Purchase price: $ 55.50 / unit $ 44.80 / unit (from the outside supplier) 0.6 DLH / Unit @ $ 17.70 / DLH $ 4.50 / unit $ 20,350 for the period $ 28,600 for the period (excluding the Lab Supervisor Salary) Expected Sales Direct materials Direct labor Variable MOH Lab Supervisor Salary Fixed MOH 5,480 units Purchase price: $ 55.50 / unit $ 44.80 / unit (from the outside supplier) 0.6 DLH / Unit @ $ 17.70 / DLH $ 4.50 / unit $ 20,350 for the period $ 28,600 for the period (excluding the Lab Supervisor Salary)