Shortly after reading the article Greg received a call from one of his Japanese suppliers, a provider of the wheel assemblies for the skateboards (both the standard model and longboard). Greg has been purchasing the wheel aseemblies from the supplier who has been providing the assemblies at a very low price. The supplier informs Greg that there is significant uncertainty in the tariffs that are required because the outcome of the Trans Pacific Partnership (TPP) trade deal is in question. The Japanese supplier informs Greg that the increase in tariff and duties on shipping will run $2.00 per wheel assembly for both the standard board and longboard. Remember each board requires two wheel assemblies. Greg thinks about how to proceed.
He opens his contact list on his computer and begins to call other known suppliers. After serveral hours on the phone negotiating price and delivery terms with alternative suppliers, Greg compiles cost data for a U.S. Supplier. The U.S. supplier has higher costs in direct materials of $.75 per wheel assembly for the standard model and $1.00 per wheel assembly for the longboard. In addition the wheel aseembles provided by the U.S. supplier will require an extra processing step before installation which willad $.50 of direct labor cost per board for both models. A new machine will also need to be purchased to perform this extra operation,os Greg will incur an additional $200 in costs per month in fixed depreciation expense. Greg would like you to evaluate the two alternatives on a monthly basis to determine how to move forward. He has assembled the following monthly data about current operations.
|
standard
|
|
|
board
|
longboard
|
|
unit sales
|
310
|
85
|
|
selling price per unit
|
80.00
|
130.00
|
|
direct materials cost per unit
|
21.00
|
33.00
|
|
direct labor cost per unit
|
27.00
|
44.00
|
|
other variables(utilities,supplies, and shipping) per unit
|
9.50
|
11.50
|
total common fixed costs are 6,700.
1. using the data above prepare two segment margin income statements in the space provided in appendix E of packet 2. the first income statement should calculate the monthly profitability if greg continues to purchase the wheel assemblies from the japanese supplier under the nwtarrif scheme and should reflect the increase in costs described above. the second income statement should calculate the profitability if greg purchases the wheel assemblies from the U.S. supplier and should reflect the increases in cost described for that scenario. (income statements have the amount and unit columns for each type of board along with a total column with amount and percentage)
2. calculate the breakeven sales dollars under both alternatives.
3. which supplier would you choose? in explaining your answer list factors other than profitability that should influence your decision.