Appendix II Potential opportunities Steel versus titanium Titanium is expensive and DDL is questioning whether it is necessary, given that most competitors use steel, which currently costs $60 less per unit in direct materials. However, there is some concern that the price of steel may increase by as much as 20% in the upcoming year. DDL estimates that a drop in sales price to $178 would be required in order to maintain current sales volumes. Steel is an easier material to work with, and as such each unit would require an estimated 10 to 20 minutes less of direct labour time, When manufacturing equipment was originally purchased, an additional $50,000 was spent to have the machinery specially modified to be capable of cutting titanium. Dog crates DDL is considering whether it would be better to manufacture and sell 5,000 seat belts and 5,000 dog crates annually. The dog crates are specifically designed for use in the cargo area of automobiles. Sales price and production costs on a per crate basis are as follows: Sales price $305 Direct materials $155 Safety label costs $4 Direct labour 1 hour Variable overhead Allocated based on direct labour hours No additional fixed costs are required. Alternatively, comparable crates could be purchased from an overseas manufacturer at a cost of $895,000 for 5,000 units. DDL will also be responsible for paying non- recoverable import duties and taxes of $25,000 per shipment based on current rates. Inspecting the crates and labelling them for safety will require 0.25 hours per crate. Although the demands on manufacturing equipment will be less, the space needed to for the inspection and storage of the crates will limit DDL's capacity for manufacturing seat belts to 5,000 regardless of the decision to outsource or not, DDL has no desire to purchase additional manufacturing equipment or rent additional space at this time. Advertising and selling an additional product would cost $55,000 annually. The National Pet Passenger Safety Board currently recommends seat belts over crates to protect dogs from the injuries they can sustain within a crate when involved in an accident. Dogs wearing seatbelts are injured 5% of the time in motor vehicle accidents, while those who are unrestrained or in crates sustain injuries 25% of the time. A properly fitted seat belt is the safest choice and can be used in the cargo areavehicle if necessary. REQUIRED: Kit would like you to draft her a memo outlining your analysis and recommendations related to each of the business decisions. Notes on both opportunities are included in Appendix II. Part 1 (11 Marks): A. Write a memo outlining your analysis and recommendations related to each of the business decisions: a. Memo Format (5 marks). b. Memo contents (6 marks). Part 2 (19 Marks): B. Calculate and compare the contribution margin (CM) per unit using titanium and steel: a. CM per unit and total CM for Titanium Model (3.5 marks). b. CM per unit and total CM for Steel Model Best Case Scenario (3.5 marks). c. CM per unit and total CM for Steel Model Worst Case Scenario (3.5 Marks) c. Calculate and compare the cost of making dog crates to purchasing from an overseas manufacturer. (4.5 Marks) D. Calculate the impact on profit of producing and selling dog crates. This analysis assumes that DDL has elected to make the crates at home rather than purchasing from overseas, and that DDL continues to produce the titanium model of seat belt. (4 Marks)