Question

Omni Sport’s Plastics Department is currently manufacturing 5,000 pairs of skates annually, making full use of its machine capacity. Presented below are the selling price and costs associated with Omni Sport’s skates.
Omni Sport believes it could sell 8,000 pairs of skates annually if it had sufficient manufacturing capacity. Colcott Inc., a steady supplier of quality products, has agreed to provide 6,000pairs of skates per year at a price of $90 per pair delivered to OmniSport’s facility. Jack Petrone, OmniSport’s product manager, has suggested that the company can make better use of its Plastics Department by manufacturing snowboard bindings. Petrone believes that Omni Sport could expect to sell 12,000 snowboard bindings annually at a price of $72 per binding. Petrone’s estimate of the costs to manufacture the bindings is presented next.
Other information pertinent to OmniSport’s operations is presented below.
◆ An allocated $7.20 fixed overhead cost per unit is included in the marketing and administrative cost for all the purchased and manufactured products. Total fixed and variable marketing and administrative costs for the purchased skates would be $12 per pair ($12 – $7.20 =$4.80 selling and administrative costs).
◆ In the Plastics Department, Omni Sport uses machine-hours as the allocation base for other manufacturing overhead costs. The fixed manufacturing overhead component of these costs for the current year is the $36,000 of fixed plant wide manufacturing overhead that has been allocated to the Plastics Department.
REQUIRED
Which product or products should Omni Sport manufacture and/or purchase to maximize operating income? Show all calculations.


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  • CreatedJuly 31, 2015
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