Case

BACKGROUND OF CASE 14-63

All Sports Company is a wholesale distributor supplying wide range of moderately priced sports equipment in large chain stores. About 60 percent of All Sports’ products are purchased from other companies while the remainder of the products are manufactured by All Sports. The Company has a Plastic Department that is currently manufacturing molded fishing tackle boxes. These tackle boxes has been the company’s bread and butter for the past few years.

CASE FACTS

All Sports’ production manager, Chris Adler, suggested to the President to add Skateboards as a new product line due to its high demands. The company is able to manufacture and sell 8,000 tackle boxes annually, making full use of its direct labor capacity at available work station. The sales manager believes that the firm could sell 12,000 tackle boxes if it had sufficient manufacturing capacity. On the other hand, Adler believes that All Sports could expect to sell 17,500 skateboards annually.

All Sports uses direct-labor hours as the application base for manufacturing overhead.

See schedule 1 for the details and computation of fishing tackle boxes;

Schedule 2 for the details and computation skateboards;

Schedule 3 for the comparison of contribution margin per labor hour of fishing tackle boxes and skateboards.

STATEMENT OF THE PROBLEM

Below are the questions that need answers:

1. Is Skateboards worth adding as new product line?

2. What will happen to the current bread and butter of the company which is the manufacturing fishing tackle boxes?

3. What is the optimal strategy to improve the total contribution margin of All Sports Company?

OBJECTIVES

To increase profitability of the company by:

1. Introducing a new product line.

2. Maintaining the customers of current product lines.

3. Seeking the optimal strategy to improve the total contribution margin of All Sports.

ALTERNATIVE COURSES OF ACTION

First Alternative: Keep the current...