Problem 1: Outdoors Inc, is a wholesale distributor that manufactures sporting equipment for retails chains, with about 60% of their products purchased from other companies. Outdoors Inc, produces 8,000 camping boxes every year utilizing direct labor capacity at available workstations. Here is the costs & selling price for the camping boxes:
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Camping Boxes
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Selling price
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$ 86.00
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Cost per box:
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Molded plastic
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$ 8.00
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Hinges, latches, handle
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$ 9.00
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Direct labor ($15/hour)
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$18.75
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Manufacturing overhead
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$12.50
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Selling & admin cost
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$17.00*
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$ 65.25
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Profit per box
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$ 20.75
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*Includes $6 per unit of fixed distribution costs
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Problem 2: Outdoors Inc believes it can sell 12,000 camping boxes and has considered purchasing from another manufacturer. Townsend Products is a supplier that could supply up to 9,000 camping boxes per year at a per unit price of $68, but this will result in variable selling & admin costs of $4 per unit. A manager at Outdoors Inc. has suggested purchasing the camping boxes and using the plastics department to manufacture children's bikes, citing a study showing that there is an expanding market with a need for more bike suppliers. The manager believes Outdoors Inc could sell 17,500 bikes annually at $45 each. Here are the costs of manufacturing the bikes:
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Children's bikes
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Selling price
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$ 45.00
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Cost per bike:
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Molded plastic
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$ 5.50
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wheels, plastic
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$ 7.00
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Direct labor ($15/hour)
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$7.50
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Manufacturing overhead
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$5.00
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Selling & admin cost
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$9.00*
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$ 34.00
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Profit per box
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$ 11.00
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*Includes $6 per unit of fixed distribution costs
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Problem 3: In the plastics department, Outdoors Inc uses direct labor hours as the application base for manufacturing overhead.
Included in the manufacturing overhead for the current year is $50,000 factory wide, fixed manufacturing overhead that's been allocated to the plastics department.
1. What are some choices that Outdoors Inc can use to solve this problem?
2. Rank the above choices in question #2 in order of preference.