Sports World Inc. has been in business for many years. It is a wholesale distributor of sporting equipment and supplies a wide range of moderately priced equipment. Their customers are large chain stores. Sports World has an enviable reputation for quality of its products. In fact, the demand for its products is so great that at times Sports World cannot satisfy the demand and must delay or refuse some orders, in order to maintain its production quality. Additionally, Sports World 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 Sports World has attained. About $60$ percent of Sports World's products are purchased from other companies while the remainder of the products are manufactured by Sports World.

The company has a plastics department that is currently manufacturing the boot for in$-$line skates. Sports World is able to manufacture and sell $7,000$ pairs of skates annually, making full use of its machine capacity at available workstations. Presented below are the selling price and costs associated with Sports World's skates.

Selling price per pair of skates $$98\mathrm{.}00$

Costs per pair

Molded plastic $$8\mathrm{.}00$

Other direct materials $12\mathrm{.}00$

Machine time $($$$16/$hr$.)32\mathrm{.}00$

Manufacturing overhead $18\mathrm{.}00$

Selling and admin. cost $15\mathrm{.}0085\mathrm{.}00$

Profit per pair $$13\mathrm{.}00$

Because Sports World believes it could sell $9,000$ pairs of skates annually if it had sufficient manufacturing capacity. The company has looked into the possibility of purchasing the skates for distribution. Omni Sports Inc., a steady supplier of quality products, would be able to provide $6,000$ pairs of skates per year at a price of $$82$ per pair delivered to Sports World's facility.

Kevin Patton, Sports World's product manager, has suggested that the company could make better use of its plastics department by manufacturing snowboard bindings. To support his position, Patton commissioned a marketing study that indicates an expanding market for snowboards and a need for additional suppliers. Patton believes that Sports World could expect to sell $12,500$ snowboard bindings annually at a price of $$61$ per binding. Patton's estimate of the costs to manufacture the bindings is presented below.

Selling price per snowboard $$61\mathrm{.}00$

Costs per binding $

Molded plastic $18\mathrm{.}25$

Other direct materials $4\mathrm{.}00$

Machine time $($$$16/$hr$.)12\mathrm{.}00$

Manufacturing overhead $6\mathrm{.}75$

Selling and admin. cost $14\mathrm{.}0055\mathrm{.}00$

Profit per binding $$6\mathrm{.}00$

Other information pertinent to Sports World's operations is presented below.

An allocated $$7$ fixed overhead cost per unit is included in the selling and administrative cost for all of the purchased and manufactured products. The total fixed and variable selling and administrative costs for the purchased skates would be $$8$ per pair.

In the plastics department, Sports World uses machine hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $$35,000$ of fixed, factory$-$wide manufacturing overhead that has been allocated to the plastics department.

REQUIRED:

To maximize Sports World Inc.$\text{'}$s profitability, recommend which product or products should be manufactured and$/$or purchased, including the amounts thereof, given current constraints.

Please prepare your analysis based on the data above $$ this should show the associated financial impact, including overall projected profit before tax and difference in overall contribution margin based on your recommended product mix etc. Be sure to support your answer with appropriate calculations, e$.$g$.,$ the contribution margin for each product $($manufactured and purchased for in$-$line skates and manufactured for bindings$)$ and show all workings clearly $($by using formula etc., in Excel$).$

Please also discuss strategic considerations and any other recommendations you think are appropriate.