Case $14-62$ Adding a Product Line $($LO $14-4,14-5)$Bo Voderwcidt, the production manager for Sportway, had requested to have lunch with thecompany president. Vonderweidt wanted to put forward his suggestion to add a new productlinc. As they finishcd lunch, Meg Thomas, the company president, said, "Ill give your proposalsome serious thought, Bo$.$ I think you're right about the increasing demand for skateboards, WhatI'm not sure about is whether the skatcboard line will bc better for us than our tackle boxes.Those have been our bread and butter the past few ycars,Vonderweidt respondcd with, "Let me get together with onc of the controller's pcople, We'll runa few numbers on this skateboard idca that $1$ think will demonstratc the line's potential,"Sportway is a wholesale distributor supplying a wide range of moderately priced sportscquipment to large chain stores. About $60\%$ of Sportway's products are purchascd from othercompanies while the remainder of the products are manulacturcd by Sportway. Thc companyhas a Plastics Department that is currently manufacturing molded fishing tackle boxes, Sportwayis able to manufacture and scll $10,000$ tacklc boxes annually, making full use of its dircct$-$laborcapacity at available work stations. The sclling price and cost associated with Sportway's tackleboxes are as follows:Selling price per boxCost per box:Molded PlasticHinges, Latches, HandleDirect Labor $($S$15,00$ per hour$)$Manufacturing OverhcadSclling and Administrative costProfit per BoxSelling price per skatcboardCosts per skatcboardMolded PlasticBecause Sportway's sales manager believes the firm could sell $19,000$ tackle boxes ifit hadsufficient manufacturing capacity, the company has looked into the possibility of purchasing thetackle boxes for distribution. Maple Products, a steady supplier of quality products, would beable to provide $14,000$ tackle boxes per year at a price of $$75\mathrm{.}00$ per box delivered to Sportsway'sFaclity.Wheels, HardwareBo Vonderweidt, Sportway's production manager, has come to the conclusion that the companycould make better use of its Plactics Department by manufacturing skateboards. Vonderweidthas a market study that indicates an expanding market for skateboards and a need for additionalDircct Labor $($$$15\mathrm{.}00$ per hour$)$Unitssuppliers$.$ Vonderweidt believes that Sportway could expect to sell $18,000$ skateboards annuallyat a price of $$56$ per skatcboardManufacturing OverheadSelling and Administrativc costProfit per skatcboardAfter his lunch with the company president, Vonderwcidt workcd out the following cstimateswith thc assistant controller.Required:Unit Contribution MariginContribution per hourPURCHASEDS$11\mathrm{.}10$Tackle BoxesPurchascd$$19,007\mathrm{.}00$TACKLE BOXESManufactured$18,006,0012\mathrm{.}725\mathrm{.}2017\mathrm{.}0012\mathrm{.}00$Improvement in total contribution mnargin$9,00$In the Plastics Department, Sportway uses direct$-$labor hours as the application base formanufacturing overhcad. Included in the manufacturing overhead for the current ycar is S$67,200$of factorywide, fixed manufacturing overhead that has been allocated to the Plastics Department.For cach unit of product that Sportway sclls$,$ regardless of whether the product has beenpurchased or is manufactured by Sportway, there is an allocated S$10$ fixed overhcad cost per unitfor distribution that is included in the selling and administrative cost for all the products. Totalselling and administrative costs for the purchased tackle boxes would be $$18$ per unit.S$98,0075\mathrm{.}72$In order to maximize the company's profitability, prepare an analysis that will show whichproduct or products Sportway should manufacture or purchase.$$22,28$REQ $1$A: Calculate the unit contribution margin and the contribution per hour for cach of thefollowing options: $($a$)$ Tackle Boxes purchased, $($b$)$ Tackle Boxes manufactured, and $($c$)$Skateboards manufacturcd. $($Do not round intermediate calculations. Round your answer to $2$decimal places$).$$$56\mathrm{.}00$$$41\mathrm{.}30$SI$4\mathrm{.}30$REQ $1$B: In order to maximize the best use of Sportway's scarce resources, how manyskatcboards and tacklc boxes should be manufactured, and ho many tackle boxes should bepurchascd?ManufacturedMANUFACTUREDTackle Boxcs SkatcboardsSKATEBOARDSREQ $2\%$Calculate the improvement in Sportway's total contribution margin if it adopts theoptimal strategy rather than continuing with the status quo.