Sportway Case

Sportway Case Study

Submitted by:Anurag Pandey 10FN-022

Arun Koul 10FN-026Arpit Khullar 10IB-021

Brijendra Dubey 10FN-126Chandrabhan Singh 10DM-037

Debanjan Das 10FN-127

About SPORTWAY Sportway Inc. is a wholesale distributor which

supplies a wide range of moderately priced sporting equipment to large chain stores.

40% - Products manufactured by Sportway60% - Products are purchased from other companies

Currently Sportway’s plastic department is manufacturing molded fishing tackle boxes.

Present production Sportway is able to produce only 8,000

tackle boxes annually making full use of their labor capacity box)

Demand for tackle boxes =12,000 units Labor hour/unit =1.25 Total working hours = 8,000*1.25 = 10,000

New Product offering

Demand for Skateboard = 17,500 units Maple products can supply max 9,000 units

of tackle boxes Total Selling and administrative expense for

purchased tackle boxes = $10/unit

OBJECTIVE Maximize the Company’s profitability by

adopting the optimum combination of production and/or purchasing of tackle boards and/or production of skateboards.

Discuss some qualitative factors that might impact Sportway’s decision.

Costs of manufactured

Products

Cost Sheet oftackle boxes

Selling price per box $86.00 Costs per box: Molded plastic $8.00 Hinges, latches, handles $9.00 Direct labor ($15/hour) $18.75 Manufacturing overhead $12.50

Selling and administration expenses $17.00 $65.25 Profit per box $20.75

Cost Sheet of Skateboard

Selling price per box $45.00 Costs per box: Molded plastic $5.50 Wheels, hardware $7.00 Direct labor ($15/hour) $7.50 Manufacturing overhead $5.00

Selling and administration expenses $9.00 $34.00 Profit per box $11.00

Overheads

Tackle Boxes : In $

Total manufacturing Overheads 1,00,000

Total variable manufacturing overheads 50,000

Total variable manufacturing Overheads/unit 6.25

Skateboard:

Total manufacturing Overheads 87,500

Total variable manufacturing overheads 37,500

Total variable manufacturing Overheads/unit 2.143

Fixed manufacturing overheads $50,000

Overheads At level of 8,000 tackle boxes, selling and

administrative costs comes to be $17.00 Hence total selling and administrative cost is

$1,36,000 Now cost per unit is fixed at $6.00 So total S & D fixed cost $48,000

CONTRIBUTION PER LABOUR HOUR for

TACKLE BOXES Selling price per box $86.00 Variable Costs per box: Molded plastic $8.00 Hinges, latches, handles $9.00 Direct labor ($15/hour) $18.75 Manufacturing overhead $6.25

Selling and administration expenses $11.00 $53.00 Contribution per box $33.00 Contribution per labor hr $26.40

CONTRIBUTION PER LABOUR HOUR for

SKATEBOARDS Selling price per box $45.00 Variable Costs per box: Molded plastic $5.50 Wheels, hardware $7.00 Direct labor ($15/hour) $7.50 Manufacturing overhead $2.143

Selling and administration expenses $3.00 $25.143 Contribution per box $19.857 Contribution per labor hr $39.714

Decision making? Constraint is labor hour (only 10,000) So decision depends on maximum

contribution/labor hour Hence Skateboards are chosen to be

produced first.

FIRST POSSIBLE Solution

Produce 17500 Skateboard Produce 1000 Tackle boxes Buy 9000 tackle boxes

CALCULATIONS

PROFIT CALCULATION

Particulars Tackle boxes Skateboard Total

Sales 86,000 7,87,500 8,73,500

Less : Variable ex 53,000 4,40,003 4,93,003

Contribution 33,000 3,47497 3,80,497

Less fixed costs 98,000

Profit 2,82,497

Total fixed cost: 50,000+48,000 = 98,000

PROFIT CALCULATION

Profit from 9000 bought tackle boxes = $72000

Total Profit from the product mix= $(2,82,497+72000)=$3,54,497

SECOND POSSIBLE SOLN. (only if tackle boxes are sold)

Produce 8000 tackle boxes Buy 4000 tackle boxes

Profit from manufactured tackle boxes= $166000

Profit from bought boxes = $32,000

Total Profit = $ 166000 + $32000 = $ 198000

Our Suggestion Produce 17500 Skateboard Produce 1000 Tackle boxes Buy 9000 tackle boxes Enjoy the Profit of $ 3,54,497

Qualitative factors Quality wise Maple products should be

comparable to that produced by Sportsway. Can Maple ensure smooth supply of Skate Boards? How important is Tackle box business for

company. The distance between two factories which shall

influence time required for transportation. Cost of transportation will also have an impact. Long term viability of both the products.