Please show and/ or explain work. Trying to learn the process from these examples. Thank you. Pelase match answer number to question number.

Required:

1) Prepare an analysis based on the data presented that will show which product or products Sportway, Inc., should manufacture and/or purchase in order to maximize the company?s profitability. It should also show the associated financial impact. Support your answer with appropriate calculations.

2) Discuss some qualitative factors that might affect Sportway?s decision.

Sportway, Inc. Sportway, Inc., is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60 percent of Sportway's products are purchased from other companies, while the remaining products are manufactured by Sportway. The company's Plastics Department is currently manufacturing molded fishing tackle boxes. Sportway is able to manufacture and sell 8,000 tackle boxes annually, making full use of its direct labor capacity at available workstations. Following are the selling price and costs associated with Sportway's tackle boxes. Selling price per box Costs per box: Molded plastic Hinges, latches, handle Direct labor ($15/hour) Manufacturing overhead Selling and administrative expenses Profit per box $86.00 $8.00 9.00 18.75 12.50 17.00 65.25 $20.75 Because Sportway believes it could sell 12,000 tackle boxes if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to 9,000 tackle boxes per year at a price of $68 per box delivered to Sportway's facility. Bart Johnson, Sportway's product manager, has suggested that the company could make better use of its Plastics Department by manufacturing skateboards. To support his position, Bart has a market study that indicates an expanding market for skateboards and a need for additional suppliers. He believes that Sportway could expect to sell 17,500 skateboards annually at a price of $45 per skateboard. Bart's estimate of the costs to manufacture the skateboards follows: Selling price per skateboard Costs per skateboard: Molded plastic $5.50 Wheels, hardware 7.00 Direct labor ($15/hour) 7.50 Manufacturing overhead 5.00 Selling and administrative expenses 9.00 1 $45.00 34.00 Profit per skateboard $11.00 In the Plastic Department, Sportway uses direct labor hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $50,000 of factory-wide, fixed manufacturing overhead that has been allocated to the Plastics Department. For each unit of product that Sportway sells, regardless of whether the product has been purchased or is manufactured by Sportway, an allocated $6 fixed overhead cost per unit for distribution is included in the selling and administrative expenses for all products. Total selling and administrative expenses for the purchased tackle boxes would be $10 per unit. Required: 1) Prepare an analysis based on the data presented that will show which product or products Sportway, Inc., should manufacture and/or purchase in order to maximize the company's profitability. It should also show the associated financial impact. Support your answer with appropriate calculations. 2) Discuss some qualitative factors that might affect Sportway's decision. 2 Solution-1 In order to maximize the company's profitability, Sportway Inc. should purchase 9,000 tackle boxes from Maple Pro This combination of purchased and manufactured goods maximizes the contribution per direct labor hour available Table 1: Selling price Less: Variable costs Material Direct labor Manufacturing support* Selling & administrative cost** Contribution Direct labor hours per unit Contribution per hour Calculation- Tackle boxes: Direct labor hours Support costs/DLH Capacity Total support Total variable support Variable support per hour Variable support per box Skateboards: Direct labor hours Variable support ** For calculating contribution, $6.00 of fixed support cost per unit for distribution must be deducted from selling a Table 2: Item Total hours Skateboards (Given in Question) Make Boxes Buy Boxes (Given in Question) Total Contribution Less: Contribution for manufacturing 8,000 boxes (8,000 $33.00) Improvement in contribution margin Solution-2 Qualitative factors that might affect Sportway's decision is the following1 2 3 4 Quality of the product produce by the Sportway's should be better. Reputation Of the company in market should be good which help company to make more creditors. Company make good labour relation so company will able to produce product timeley and with better quality. Sportway's should improve there services so customer will retain long term with the company. Inc. should purchase 9,000 tackle boxes from Maple Products, manufacture 17,500 skateboards, and manufacture 1,000 tackle boxes. maximizes the contribution per direct labor hour available, as calculated in Tables 1 and 2 Calculate unit contribution PurchasedTackle Boxes $86.00 ManufacturedTackle Boxes Skateboards $86.00 $45.00 68 n/a n/a 4 $14.00 none n/a 17 18.75 6.25 11 $33.00 1.25 $26.40 12.5 7.5 2.5 3 $19.50 0.5 $39.00 = $18.75 $15.00 = 1.25 hours = $12.50 1.25 = $10.00 = 8,000 boxes 1.25 = $10,000 = 10,000 hours $10 = $100,000 = $100,000 - $50,000 = $50,000 = $50,000 10,000 = $5.00 = $5.00 1.25 = $6.25 = $7.50 $15.00 = .5 hours = $5.00 .5 = $2.50 per unit for distribution must be deducted from selling and administrative cost. 000 $33.00) Quantity 17,500 1,000 9,000 Optimal use of Sportway's available direct labor Unit DLH Total Contribution per Unit DLH $19.50 33 14 0.5 1.25 8,750 1,250 the following- h help company to make more creditors. to produce product timeley and with better quality. retain long term with the company. manufacture 1,000 tackle boxes. abor Balance of DLH 10,000 1,250 Total Contribution $341,250 33,000 126,000 $500,250 264,000 $236,250 Solution-1 In order to maximize the company's profitability, Sportway Inc. should purchase 9,000 tackle boxes from Maple Pro This combination of purchased and manufactured goods maximizes the contribution per direct labor hour available Table 1: Selling price Less: Variable costs Material Direct labor Manufacturing support* Selling & administrative cost** Contribution Direct labor hours per unit Contribution per hour Calculation- Tackle boxes: Direct labor hours Support costs/DLH Capacity Total support Total variable support Variable support per hour Variable support per box Skateboards: Direct labor hours Variable support ** For calculating contribution, $6.00 of fixed support cost per unit for distribution must be deducted from selling a Table 2: Item Total hours Skateboards (Given in Question) Make Boxes Buy Boxes (Given in Question) Total Contribution Less: Contribution for manufacturing 8,000 boxes (8,000 $33.00) Improvement in contribution margin Solution-2 Qualitative factors that might affect Sportway's decision is the following1 2 3 4 Quality of the product produce by the Sportway's should be better. Reputation Of the company in market should be good which help company to make more creditors. Company make good labour relation so company will able to produce product timeley and with better quality. Sportway's should improve there services so customer will retain long term with the company. Inc. should purchase 9,000 tackle boxes from Maple Products, manufacture 17,500 skateboards, and manufacture 1,000 tackle boxes. maximizes the contribution per direct labor hour available, as calculated in Tables 1 and 2 Calculate unit contribution PurchasedTackle Boxes $86.00 ManufacturedTackle Boxes Skateboards $86.00 $45.00 68 n/a n/a 4 $14.00 none n/a 17 18.75 6.25 11 $33.00 1.25 $26.40 12.5 7.5 2.5 3 $19.50 0.5 $39.00 = $18.75 $15.00 = 1.25 hours = $12.50 1.25 = $10.00 = 8,000 boxes 1.25 = $10,000 = 10,000 hours $10 = $100,000 = $100,000 - $50,000 = $50,000 = $50,000 10,000 = $5.00 = $5.00 1.25 = $6.25 = $7.50 $15.00 = .5 hours = $5.00 .5 = $2.50 per unit for distribution must be deducted from selling and administrative cost. 000 $33.00) Quantity 17,500 1,000 9,000 Optimal use of Sportway's available direct labor Unit DLH Total Contribution per Unit DLH $19.50 33 14 0.5 1.25 8,750 1,250 the following- h help company to make more creditors. to produce product timeley and with better quality. retain long term with the company. manufacture 1,000 tackle boxes. abor Balance of DLH 10,000 1,250 Total Contribution $341,250 33,000 126,000 $500,250 264,000 $236,250