Balder$-$Dash Inc. $(B-DI)is$ a large conglomerate with both manufacturing and service$-$based

businesses. $B-$DI's goal $isto$ provide its customers $(who$ are original equipment

manufacturers $or$ OEMs$)$ one$-$stop shopping for a wide range $of$ component parts. $B-$DI's

customers will pay a small premium for quality but are extremely cost conscious.

$An$ opportunity $to$ purchase $an$ item $it$ currently produces $to$ sell $as$ part $of$ a bundle $of$

products $to$ one $of$ its major customers has occurred. You have been assigned $to$ recommend $a$

course $of$ action.

The item $in$ question, a small fabricated metal part, currently $is$ sold for $$5\mathrm{.}00$ and has

annual demand $of10,000$ units. Demand $is$ stable and reasonably uniform throughout the

year. One $ofB-$DI's suppliers was asked $to$ quote the part and has come back with a price $of$

$$4\mathrm{.}00.$ The current standard cost for this part $is$ $$6\mathrm{.}70.$ The $G$&$A(general$ and administrative$)$

and $R$&$D(research$ and development$)$ costs add $20\%to$ the standard cost for figuring profits

$on$ a per item basis. Accounting and purchasing have recommended discontinuing the part

since $no$ profit $is$ made $on$ the part. Marketing has proposed that the part $be$ outsourced, which

will convert $an$ annual loss $of$ $$30,400$ into a small profit. Marketing has indicated that

discontinuing the part will not directly impact sales $of$ the remainder $of$ the bundle $to$ the

major customer but has expressed a concern that while pricing this item, the customer would

"shop around" for other items $in$ the bundle.

The current cost accounting picture $is$ shown $in$ Table $4-1.$

Table $4-1$ Current Standard Cost for Manufactured Part

The proposed cost accounting picture $is$ shown $in$ Table $4\mathrm{.}2.$

Table $4-2$ Proposed Standard Cost for Purchased Part

Suggestions for the Student:

Are there any inaccuracies $in$ the standard costs?

Should the part $in$ question $be$ outsourced?

What $is$ the financial impact $of$ your recommendation?

What other recommendations $(or$ investigations$)$ would you make $(or$ start$)$ based

$on$ your findings $to$ date?