John Menard is the founder and sole owner of Menards. Analysts have estimated that his chain of

Question:

John Menard is the founder and sole owner of Menards. Analysts have estimated that his chain of home improvement stores scattered around nine midwestern states generate about $3 billion in annual sales. But how can Menards compete with giant Home Depot?
Suppose Menard is trying to decide whether to produce Menards€™ own line of Formica countertops, cabinets, and picnic tables.
Assume Menards would incur the following unit costs in producing its own product lines:

Countertops Cabinets Picnic Tables Direct materials per unit.. Direct labor per unit. Variable manufacturing overhead pe

Rather than making these products, assume that Menards could buy them from outside suppliers. Suppliers would charge Menards $40 per countertop, $25 per cabinet, and $65 per picnic table. Whether Menard makes or buys these products, assume that he expects the following annual sales:
— Countertops€”487,200 at $130 each
— Picnic tables€”100,000 at $225 each
— Cabinets€”150,000 at $75 each
Assume that Menards has a production facility with excess capacity that could be used to produce these products with no additional fixed costs. If €œmaking€ is sufficiently more profitable than outsourcing, Menard will start production of his new line of products. John Menard has asked your consulting group for a recommendation.
Requirements
1. Are the following items relevant or irrelevant in Menard€™s decision to build a new plant that will manufacture his own products?
a. The unit sale prices of the countertops, cabinets, and picnic tables (the sale prices that
Menards charges its customers)
b. The prices outside suppliers would charge Menards for the three products, if Menards decides to outsource the products rather than make them
c. The direct materials, direct labor, and variable overhead Menards would incur to manufacture the three product lines
d. John Menard€™s salary
2. Determine whether Menards should make or outsource the countertops, cabinets, and picnic tables. In other words, what is the annual difference in cash flows if Menards decides to make rather than outsource each of these three products?
3. Write a memo giving your recommendation to John Menard. The memo should clearly state your recommendation, along with a brief summary of the reasons for yourrecommendation.