Case Study II The Key to Decision Making $-$ Analysis $($CLO# $2,3,$ & $4)$ Case: AL AIN MANUFACTURING COMPANY $$ AAC For $6$ years, Al Ain Company $($AAC$)$ only produced one product: the basic electric kettle for boiling water. The kettle was the first on the market to have a reliability system enabling it to turn itself off at the exact moment when the water had boiled. It is also light enough to be carried easily, looked modern and was quite robust. From a manufacturing point of view, the kettle consisted of: $*$pressed stainless steel body and lid, which AAC bought complete $*$heat$-$insulated handle of wire and plastic, which also formed the cover of the switching mechanism above the hole for electric plug, which AAC bought complete $*$heating element, which AAC bought semi$-$finished $*$thermostat and switching mechanism, which AAC pre$-$assembled from standard electrical components The thermostat and switching mechanism were both technically, and in market terms, the heart of the product and were protected by a large number of patents. This was the main reason why AAC preferred to manufacturing this part completely whereas it bought all other parts in more or less finished form. Final assembly, test $($mainly electrical insulation efficiency$)$ and packaging was also carried out by AAC. Immediately after it was founded, AAC greatly prospered. The automatic kettle was not only useful in a coffee$/$tea$-$drinking country where households needed a convenient supply of boiling water in several different rooms of the house. It also seemed to appeal to the safety needs of housewives who might otherwise have been afraid of an unattended kettle boiling dry, melting and setting fire to the house. The AAC kettle however confirmed its safety to the housewives every time it switched off in normal operation when the water is boiled. It also profited from the fact that the basic idea behind the thermostat was so beautiful simple, that no effective challenge was ever mounted to its main patents. Last year AAC manufactured and sold $143,000$ kettles for $39$ Dh each, but each kettle only costs $20\mathrm{.}57$ Dh$.$ Look at the figures! The finished components for each kettle cost just over $10\mathrm{.}50$ Dh$,$ AAC had to spend $100,000$ Dh on standard electrical parts for the thermostats, wages costs were $1,128,000$ Dh $($including health insurance$),$ the plant rent was $100,000$ Dh$,$ heat and lighting in that draughty place were $17,000$ Dh and all other general expenses were another $95,000$ Dh$.$ However, an outside supplier has offered to provide the $143,000$ kettles at a cost of $$2,860,000.$ At the end of the year AAC had no inventory left in the warehouse; neither finished products nor parts, nor raw materials. The president of AAC $($who also the managing director and a partner$)$ looked at those numbers and said $$let us party! We have made a profit of $18\mathrm{.}43$ Dh per kettle$.$ The financial officer $($who is the other partner$)$ said: $$don$$t forget all those people in administration and sales. They cost $451,000$ Dh$.($including advertising$).$ What about those machines and equipment you had to buy. We have used the machines and equipment, which cost one million Dirhams; so much that we would not even get scrap value from them. They are worn out and worth nothing.$$ Instructions: Based on the above information, answer the following: $1-$ Discussion and analysis: Should Al Ain Manufacturing Company stop making the kettle and buy it from an outside supplier? Explain your answer. $2-$ Can we$,$ in real life, use this sort of product cost calculation in most normal manufacturing companies in the UAE market? Explain and support your answers based on the local market. $3-$ Discuss and explain your decisions and recommendations for this case, based on the Ethical, Conduct in Management Accountants' Professional Activities developed by the Institute of Management Accountants $($IMA$).$