Hop-a-Long Company makes rocking horses for the children’s market. Recently it has been thinking of making a larger horse that would be suspended on springs; the current models sit on the floor and simply rock back and forth on wooden rockers. All of the products are brightly painted and are quite popular among grandparents who dote on their grandchildren! The new model would be targeted to a slightly older child, which would expand the company’s product line.

Jim Rangely, V P of product development, has pulled together some information but needs a lot of help in making sense of it for the new spring- suspended horse. Today ’s market price for the type of product Hop-a-Long is considering is $250. The horse will also need an audio component, which means more new technology for Hop-a-Long. The following table contains all of the information Jim has gathered.

REQUIRED:

a. Using the information above, calculate the current cost of the new product.

b. The company needs to make a 50% profit to cover overhead, marketing, and other product- and company-based charges. What is the target cost?

c. What is the current cost gap?

d. Hop-a-Long has been approached by a Chinese company that is willing to manufacture the spring horse for Hop-a-Long for $140 delivered. Should Hop-a-Long outsource this product? Why or why not?

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Hop-a-Long Company Quantity 6 yds 1 yds Production Item Price Plush horse hair material $2.25 yd Fringe $1.75 yd Eyes 2 ea $0.50 ea Nose 1 ea $0.75 ea Springs 4 ea $1.25 ea $0.75 ft Metal tubing Screw and grommets 20 ft 30 ea $0.05 ea Machining-sewing Machining-metal frame Kitting 4 min $540.00 hr 3 min $480.00 hr 2 kits 5 min $10.00 kit Assembly $24.00 hr 5 min 8 min 1 pkg Inspection $48.00 hr Packoging $18.00 hr Shipping $15.00 pkg