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Sportway Inc. is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60 percent of Sportway's products
Sportway Inc. is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60 percent of Sportway's products are purchased from other companies, and the remainder is manufactured by Sportway. The company has a plastics department that currently manufactures molded fish-tackle boxes. Sportway is able to manufacture and sell 8,000 tackle boxes annually, making full use of its direct labor capacity at available workstations. Presented below are the selling price and costs associated with Sportway's tackle boxes. Selling price per box $86.00 Costs per box Molded plastic $8.00 Hinges, latches, handle 9.00 Direct labor ($15.00/hr) 18.75 Manufacturing overhead 12.50 Selling and administrative cost 17.00 65.25 Proft per box $20.75 Because Sportway believes it could sell 12,000 tackle boxes if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to 9,000 tackle boxes per year at a price of $68 per box delivered to Sportway's facility. Bart Johnson, Sportway's product manager, has suggested that the company could make better use of its plastic department by manufacturing skateboards. To support his position, Johnson conducted a market study that indicates an expanding market for skateboards and a need for additional suppliers. Johnson believes that Sportway could expect to sell 17,500 skateboards annually at $45 per skateboard. Johnson's estimate of the costs to manufacture the skateboard follows: Selling price per skateboard $45.00 Costs per skateboard Molded plastic $5.50 Wheels, hardware 7.00 Direct labor ($15.00/hr) 7.50 Manufacturing overhead 5.00 Selling and administrative cost 9.00 34.00 Proft per skateboard $11.00 In the plastics department, Sportway uses available direct labor hours as the application basis for manufacturing overhead. The manufacturing overhead includes $50,000 of fixed manufacturing overhead. For each product that Sportway sells, regardless of whether the product has been purchased or manufactured by Sportway, the company allocates its fixed selling and administrative costs at a rate of $6 per unit. The total selling and administrative costs for the purchased tackle boxes would be $10 per unit. Sportway does not expect its fixed manufacturingoverhead and selling and administrative overhead expenses to change as long as its facilities are fully utilized.Calculate the euutrihut'tun margin per unit c-f {i} the sh tackle bus if manufactured illhouse, (ii) the sh tackle has if purchased from Maple Products, and (iii) the skateboard if Spurtwav decides to make it in the plastics department. Recommend a course of action for Sportway with respect to which product(s) the company should make in-house and whether and to what extent Sportway should outsource fish tackle boxes to Maple Products
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