Sportway, Inc.Sportway, Inc., is a wholesale distributor supplying a wide range of moderately pricedsporting equipment to large chain stores. About 60 percent of Sportwayâs products arepurchased from other companies, while the remaining products are manufactured bySportway. The companyâs Plastics Department is currently manufacturing moldedfishing tackle boxes. Sportway is able to manufacture and sell 8,000 tackle boxesannually, making full use of its direct labor capacity at available workstations. Followingare the selling price and costs associated with Sportwayâs tackle boxes.Selling price per boxCosts per box:Molded plasticHinges, latches, handleDirect labor ($15/hour)Manufacturing overheadSelling and administrativeexpensesProfit per box $86.00$8.009.0018.7512.5017.00 65.25$20.75 Because Sportway believes it could sell 12,000 tackle boxes if it had sufficientmanufacturing capacity, the company has looked into the possibility of purchasing thetackle 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 boxdelivered to Sportwayâs facility.Bart Johnson, Sportwayâs product manager, has suggested that the company could makebetter use of its Plastics Department by manufacturing skateboards. To support hisposition, Bart has a market study that indicates an expanding market for skateboards anda need for additional suppliers. He believes that Sportway could expect to sell 17,500skateboards annually at a price of $45 per skateboard. Bartâs estimate of the costs tomanufacture the skateboards follows: Selling price per skateboardCosts per skateboard:Molded plastic$5.50Wheels, hardware7.00Direct labor ($15/hour)7.50Manufacturing overhead5.00Selling and administrative expenses 9.001 $45.00 34.00 Profit per skateboard $11.00 In the Plastic Department, Sportway uses direct labor hours as the application base formanufacturing overhead. Included in the manufacturing overhead for the current year is$50,000 of factory-wide, fixed manufacturing overhead that has been allocated to thePlastics Department. For each unit of product that Sportway sells, regardless of whetherthe product has been purchased or is manufactured by Sportway, an allocated $6 fixedoverhead cost per unit for distribution is included in the selling and administrativeexpenses for all products. Total selling and administrative expenses for the purchasedtackle boxes would be $10 per unit.Required:1) Prepare an analysis based on the data presented that will show which product orproducts Sportway, Inc., should manufacture and/or purchase in order to maximize thecompanyâs profitability. It should also show the associated financial impact. Supportyour answer with appropriate calculations.2) Discuss some qualitative factors that might affect Sportwayâs decision. 2
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