Ricks Sporting Goods is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. Ricks Sporting Goods has an enviable reputation for quality of its products. In fact, the demand for its products is so great that at times Ricks Sporting Goods cannot satisfy the demand and must delay or refuse some orders, in order to maintain its production quality. Additionally, Ricks Sporting Goods purchases some of its products from outside suppliers in order to meet the demand. These suppliers are carefully chosen so that their products maintain the quality image that Ricks Sporting Goods has attained. About 60 percent of Ricks Sporting Goods' products are purchased from other companies while the remainder of the products are manufactured by Ricks Sporting Goods. The company has a Plastics Department that is currently manufacturing the boot for in-line skates. Ricks Sporting Goods is able to manufacture and sell 5,000 pairs of skates annually, making full use of its machine capacity at available workstations. Presented below are the selling price and costs associated with Ricks Sporting Goods' skates

Selling price per pair of skates $98

Costs per pair Molded plastic $8

Other direct materials 12

Machine time ($16/hr.) 24

Manufacturing overhead 18

Selling and admin. cost 15 77

Profit per pair $21

------

Because Ricks Sporting Goods believes it could sell 8,000 pairs of skates annually if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the skates for distribution. Colcott Inc., a steady supplier of quality products, would be able to provide 6,000 pairs of skates per year at a price of $75 per pair delivered to Ricks Sporting Goods' facility. Jack Potter, Ricks Sporting Goods' product manager, has suggested that the company could make better use of its Plastics Department by manufacturing snowboard bindings. To support his position, Potter has a market study that indicates an expanding market for snowboards and a need for additional suppliers. Potter believes that Ricks Sporting Goods could expect to sell 12,000 snowboard bindings annually at a price of $60 per binding. Potter's estimate of the costs to manufacture the bindings is presented below.

Selling price per snowboard binding $60

Costs per binding Molded plastic $16

Other direct materials 4 Machine time ($16/hr.) 8

Manufacturing overhead 6

Selling and admin. cost 14 48

Profit per binding $12

===

Other information pertinent to Ricks Sporting Goods' operations is presented below. An allocated $6 fixed overhead cost per unit is included in the selling and administrative cost for all of the purchased and manufactured products. Total fixed and variable selling and administrative costs for the purchased skates would be $10 per pair. In the Plastics Department, Ricks Sporting Goods uses machine hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $30,000 of fixed, factory-wide manufacturing overhead that has been allocated to the Plastics Department. *Company & Employee names have been changed.

==

REQUIRED:

To maximize Ricks Sporting Goods' profitability, recommend which product or products should be manufactured and/or purchased. Prepare an analysis based on the data presented that will show the associated financial impact. Support your answer with appropriate calculations and strategic considerations. Please include other factors besides cost that Rick should take into consideration when making this decision. Solutions should include an excel file for calculations and a word document for the written response. For this case, it is best to utilize the Five Steps of Strategic Decision Making found on page 19 of your textbook. 1. Determine the strategic issues surrounding the problem. 2. Identify the alternative actions. 3. Obtain information and conduct analysis of the alternatives. This is where you will perform your calculations and analyze financial impact. 4. Based on strategy and analysis, choose the desired alternative. 5. Describe how you will conduct the ongoing evaluation of the effectiveness of implementation in step 4.