VIII. Woodco is a wholesale distributor supplying a wide range of equipment and tools to the logging industry. About half of Woodco's products are purchased from other companies and the remainder is manufactured by WoodCo for distribution. One of the items that WoodCo makes is a fiberglass reinforced case used to carry tong-bladed chain saws. In a normal year, WoodCo manufactures and sells 5,000 of these cases. This production makes full use of WoodCo's capacity in the fiberglass Processing Department which is limited by the amount of direct labor that can be expended at a fixed number of work stations. WoodCo believes it could sell a maximum of 7,000 cases if it had the manufacturing capacity. Presented below are the actual revenue and cost data for manufacturing chain saw cases. Selling Price...per case. $80.00 Costs per case: Fiberglass & resin Handles, hinges, latch Direct labor ($12.00 per hr.) Manufacturing overhead $6.00 Selling & Admin $24.00 $7.00 $12.00 $16.00 WoodCo has looked into the possibility of purchasing chain saw cases for distribution. The company learned that Murphy Supply could provide the cases in volume quantities at a price of $60.00 each delivered to WoodCo's facility. The maximum number of cases that Murphy could supply to Woodco in any given year would be 6,000 and the cases must be bought in increments of 1,000. Other goods supplied from Murphy in the past have been of very good quality and WoodCo regards Murphy as a reliable vendor. The only other product that WoodCo's Fiberglass Processing Department could make is a brightly colored hard hat. At present, WoodCo does not sell hard hats; however, a market analysis indicates there is room for another producer. The market analysis revealed that a sales price of $35.00 per hat would be best; at this price, WoodCo could expect to sell 9,500 hard hats annually. The data gathered indicates that the profit per hard hat would be considerably less than the profit per chain saw case. The estimated manufacturing costs for the hard hats are presented in the next column. Selling Price per hat. $35.00 Costs per hat: Fiberglass & resin Liner, strap and rivets Direct labor ($12.00 per hour) Manufacturing overhead $2.40 Selling & Admin $12.00 $5.00 $4.80 $3.50 WoodCo employs departmental rates for applying manufacturing overhead to its' products. Direct labor hours are used as the application base for the Fiberglass Processing Department. Included in the manufacturing overhead for the current year is $20,000 of factory wide fixed manufacturing overhead that has been allocated to the Fiberglass Processing Department. In addition, $80,000 per year companywide fixed selling and administrative costs are allocated to the Fiberglass Processing Department using a 20 percent of sales application base. To encourage new products, however, WoodCo's policy is to allocate company-wide fixed selling and administrative costs at 10% of sales rather than the usual 20% WoodCo's management is, of course, interested in increasing the profitability of the firm. Therefore, the company Controller, David Roman, has been asked to review the available data and recommend what combination of products WoodCo should manufacture and for purchase in the future. REQUIRED: David Roman wishes to capture the market for fiberglass cases and hard hats. That is, Woodco would have to sell 7,000 fiberglass cases and 9,500 hats. Prepare an analysis based on the data presented. that will show which product or products WoodCo should manufacture and/or purchase in order to maximize the company's profitability. Support your answer with appropriate calculations. VIII. Woodco is a wholesale distributor supplying a wide range of equipment and tools to the logging industry. About half of Woodco's products are purchased from other companies and the remainder is manufactured by WoodCo for distribution. One of the items that WoodCo makes is a fiberglass reinforced case used to carry tong-bladed chain saws. In a normal year, WoodCo manufactures and sells 5,000 of these cases. This production makes full use of WoodCo's capacity in the fiberglass Processing Department which is limited by the amount of direct labor that can be expended at a fixed number of work stations. WoodCo believes it could sell a maximum of 7,000 cases if it had the manufacturing capacity. Presented below are the actual revenue and cost data for manufacturing chain saw cases. Selling Price...per case. $80.00 Costs per case: Fiberglass & resin Handles, hinges, latch Direct labor ($12.00 per hr.) Manufacturing overhead $6.00 Selling & Admin $24.00 $7.00 $12.00 $16.00 WoodCo has looked into the possibility of purchasing chain saw cases for distribution. The company learned that Murphy Supply could provide the cases in volume quantities at a price of $60.00 each delivered to WoodCo's facility. The maximum number of cases that Murphy could supply to Woodco in any given year would be 6,000 and the cases must be bought in increments of 1,000. Other goods supplied from Murphy in the past have been of very good quality and WoodCo regards Murphy as a reliable vendor. The only other product that WoodCo's Fiberglass Processing Department could make is a brightly colored hard hat. At present, WoodCo does not sell hard hats; however, a market analysis indicates there is room for another producer. The market analysis revealed that a sales price of $35.00 per hat would be best; at this price, WoodCo could expect to sell 9,500 hard hats annually. The data gathered indicates that the profit per hard hat would be considerably less than the profit per chain saw case. The estimated manufacturing costs for the hard hats are presented in the next column. Selling Price per hat. $35.00 Costs per hat: Fiberglass & resin Liner, strap and rivets Direct labor ($12.00 per hour) Manufacturing overhead $2.40 Selling & Admin $12.00 $5.00 $4.80 $3.50 WoodCo employs departmental rates for applying manufacturing overhead to its' products. Direct labor hours are used as the application base for the Fiberglass Processing Department. Included in the manufacturing overhead for the current year is $20,000 of factory wide fixed manufacturing overhead that has been allocated to the Fiberglass Processing Department. In addition, $80,000 per year companywide fixed selling and administrative costs are allocated to the Fiberglass Processing Department using a 20 percent of sales application base. To encourage new products, however, WoodCo's policy is to allocate company-wide fixed selling and administrative costs at 10% of sales rather than the usual 20% WoodCo's management is, of course, interested in increasing the profitability of the firm. Therefore, the company Controller, David Roman, has been asked to review the available data and recommend what combination of products WoodCo should manufacture and for purchase in the future. REQUIRED: David Roman wishes to capture the market for fiberglass cases and hard hats. That is, Woodco would have to sell 7,000 fiberglass cases and 9,500 hats. Prepare an analysis based on the data presented. that will show which product or products WoodCo should manufacture and/or purchase in order to maximize the company's profitability. Support your answer with appropriate calculations