Problem 8-28

Oriole, Inc., is a leading manufacturer of sporting equipment. The company is in the process of evaluating the best use of its Plastics Division, which is currently manufacturing molded fishing tackle boxes. The company manufactures and sells 8,000 tackle boxes annually, making full use of its available capacity. The selling prices and costs of the tackle boxes are as follows:

Selling price per box				$91.48
Costs per box
Direct materials		$17.75
Direct labor		18.92
Variable manufacturing overhead		7.33
Fixed manufacturing overheada		5.50
Variable selling & administrativeb		10.43
Fixed selling & administrativea		7.14
Total cost per box				67.07
Profit per box				$24.41

^aAllocated to products based on expected production volume. ^bPer unit variable selling and administrative costs are the same for all products. Managers believe they could sell 12,000 tackle boxes if the company had sufficient manufacturing capacity. Rod-N-Reel has offered to supply 9,000 tackle boxes per year at a price of $71.67 per box, including delivery to Orioles facility. Cedric Smith, Orioles product manager, believes the company could make better use of its plastics department by manufacturing skateboards. A marketing report indicates that 18,200 skateboards could be sold at a price of $47.10 each. Variable costs to make the boards would be $24.98 per board. Oriole has three options:

1.	Make and sell 8,000 tackle boxes.
2.	Make 8,000 tackle boxes, buy 4,000 additional tackle boxes, and sell 12,000 tackle boxes.
3.	Make and sell 18,200 skateboards, and buy and sell 9,000 tackle boxes.

Compare the companys operating income under the three options. (Round price per box to 2 decimal places, e.g. 12.25 and all other answers to 0 decimal places, e.g. 125. Do not leave any answer field blank. Enter 0 for amounts.)