Sports Simba Ltd. is a distributor in the wholesale market supplying a wide variety of moderately priced sports equipment to large chain of stores. The company has a plastics department that is currently manufacturing modelled fishing tackle boxes. Sports Simba can manufacture and sell 4,000 tackle boxes annually, making full use of its direct labor capacity at available workstations. The following table presents the selling price and per unit costs associated with Sports Simbas tackle boxes: Selling Price 2,150.00 Costs per box: Moulded plastic 200 Hinges latches, handle 225 Direct labour (Rs. 375/ hour) 468.75 Manufacturing Overhead 312.50 Selling and Administrative Cost * 425 1,631.25 Profit per box 518.75 *Includes Rs. 150 per unit of fixed distribution costs. Because Sports Simba believes that it could sell 6,000 tackle boxes, the company has investigated the possibility of purchasing the tackle boxes from another manufacturer. Bells and Rings Products, a supplier of quality products could provide up to 4,500 tackle boxes per year at a unit price of Rs. 1,700. Variable selling and administrative costs of Rs.100 per unit will be incurred if the tackle boxes are purchased from Bells and Rings Products. Kabir, Sports Simbas product manager has suggested that the company could make better use of its plastics department by purchasing the tackle boxes and manufacturing skateboards. To support his position, Kabir has a market study that indicates an expanding market for skateboards and a need for additional suppliers. Kabir believes that Sports Simba could expect to sell 8,750 skateboards annually at a price of Rs. 1,125 per skateboard. Kabirs estimate of the costs to manufacture the skateboards is as follows: 4 Selling Price per skateboard 1,125.00 Costs per skateboard: Moulded plastic 137.50 Wheels, plastic 175 Direct labour (Rs. 375/ hour) 187.50 Manufacturing Overhead 125 Selling and Administrative Cost* 225 850.00 Profit per skateboard 275.00 *Includes Rs. 150 per unit of fixed distribution costs. In the plastics department, Sports Simba uses direct labor hours as the base for applying manufacturing overhead. Included in the manufacturing overhead for the current year is Rs. 6,25,000 factory wide, fixed manufacturing overhead that has been allocated to the plastics department. Required: A. Define the problem faced by Sports Simba based on the facts as presented. (2 marks) B. Evaluate the alternatives available with Sports Simba with the necessary calculations and rank these alternatives as per their contribution margin. (1) Manufacture skateboards (2) Purchase tackle boxes (3) Manufacture tackle boxes (6 marks) C. What qualitative factors should Sports Simba consider in the decision? (2 marks) D. Should Sports Simba consider the potential liability that comes with selling skateboards? It has been shown that skateboards are responsible for 25 deaths per year and more than 500 serious accidents. Would that change your decision to make skateboards? (2 marks)