MiniTek manufactures private-label small electronic products,
such as alarm clocks, calculators, kitchen timers, stopwatches, and
automatic pencil sharpeners. Some of the products are sold as sets,
and others are sold individually. Products are studied as to their
sales potential, and then cost estimates are made. The Engineering
Department develops production plans, and then production begins.
The company has generally had very successful product
introductions. Only two products introduced by the company have
been discontinued.
One of the products currently sold is a multi-alarm clock. The
clock has four alarms that can be programmed to sound at various
times and for varying lengths of time. The company has experienced
a great deal of difficulty in making the circuit boards for the
clocks. The production process has never operated smoothly. The
product is unprofitable at the present time, primarily because of
warranty repairs and product recalls. Two models of the clocks were
recalled, for example, because they sometimes caused an electric
shock when the alarms were being shut off. The Engineering
Department is attempting to revise the manufacturing process, but
the revision will take another 6 months at least.
The clocks were very popular when they were introduced, and since
they are private-label, the company has not suffered much from the
recalls. Presently, the company has a very large order for several
items from Kmart Stores. The order includes 3,200
of the multi-alarm clocks. When the company suggested that Kmart
purchase the clocks from another manufacturer, Kmart threatened to
rescind the entire order unless the clocks were included.
The company has therefore investigated the possibility of having
another company make the clocks for them. The clocks were bid for
the Kmart order based on an estimated $4.84 cost to
manufacture:
Circuit board, 1 each @ $1.40 | $1.40 | ||
Plastic case, 1 each @ $0.60 | 0.60 | ||
Alarms, 4 @ $0.11 each | 0.44 | ||
Labor, 15 minutes @ $8/hour | 2.00 | ||
Overhead, $1.60 per labor hour | 0.40 |
MiniTek could purchase clocks to fill the Kmart order for $8.00
from Trans-Tech Asia, a Korean manufacturer with a very good
quality record. Trans-Tech has offered to reduce the price to $6.00
after MiniTek has been a customer for 6 months, placing an order of
at least 1,000 units per month. If MiniTek becomes a “preferred
customer” by purchasing 12,000 units per year, the price would be
reduced still further to $3.50.
Omega Products, a local manufacturer, has also offered to make
clocks for MiniTek. They have offered to sell 3,200 clocks for
$4.00 each. However, Omega Products has been in business for only 6
months. They have experienced significant turnover in their labor
force, and the local press has reported that the owners may face
tax evasion charges soon. The owner of Omega Products is an
electronic engineer, however, and the quality of the clocks is
likely to be good.
If MiniTek decides to purchase the clocks from either Trans-Tech or
Omega, all the costs to manufacture could be avoided, except a
total of $800 in overhead costs for machine depreciation. The
machinery is fairly new, and has no alternate use.
(a1)
Calculate profit under each of the alternatives if the clocks are
to be sold for $12.00 each to Kmart
Make | Buy-Trans-Tech | Buy-Omega | ||||
Profit | $ | $ | $ |
a(1) | |||
Make |
Buy Trans-Tech | Buy Omega | |
Sales Revenue per Clock | $ 12.00 | $ 12.00 | $ 12.00 |
Less: Manufacturing Costs | |||
Circuit Board | $1.40 | - | - |
Plastic Case | $0.60 | - | - |
Alarms | $0.44 | - | - |
Labor | $2.00 | - | - |
Overhead | $0.40 | - | - |
Purchase Cost | - | $ 8.00 | $ 4.00 |
Fixed Manufacturing Costs - $800 / 3200 | - | $ 0.25 | $ 0.25 |
Total Manufacturing Costs | $4.84 | $8.25 | $4.25 |
Profit per Clock | $7.16 | $3.75 | $7.75 |
Total Profit = 3200 x profit per clock | $ 22,912.00 | $ 12,000.00 | $ 24,800.00 |
MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic...
MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stop watches, and automatic pencil sharpeners. Some of the products are sold as a set, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are made. The engineering Department develops production plans, and then cost estimates are made. The Engineering Department develops product introductions. Only two products introduced by the company have been discontinued. One of the products currently...
MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stop watches, and automatic pencil sharpeners. Some of the products are sold as a set, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are made. The engineering Department develops production plans, and then cost estimates are made. The Engineering Department develops product introductions. Only two products introduced by the company have been discontinued. One of the products currently...
Expand Your Critical Thinking 20-02 a1 MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are ma The Engineering Department develops production plans, and then production begins. The company has generally had very successful product introductions. Only two products introduced by the company have been discontinued....
Your answer is partially correct. Try again. MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are made. The Engineering Department develops production plans, and then production begins. The company has generally had very successful product introductions. Only two products introduced by the company have been...
The questions are at the bottom Expand Your Critical Thinking 20-02 a2, b-c (Essay) MiniTek manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually, Products are studied as to their sales potential, and then cost estimates are made. The Engineering Department develops production plans, and then production begins. The company has generally had very successful product introductions. Only two...
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