Essay About Bike Frames And Additional Drums

Tuffstuff, Inc. Case Analysis
TufStuff, Inc.: A Case on Relevant Cost for Decision Making University of the Philippines Los Baños Management 213 Submitted by:  Gonzales, Joahna Erika S.J. Hega, Johnson Gaye Hidalgo, Laurence Monterola, Ceazar Matthew Tipayno, Sheila A. Wakim, Michael  OverviewTufStuff, Inc., a company selling containers that are used in the chemical industry, is currently facing challenges in line with its manufacturing capacity. The management is looking into a make or buy decision for its main product, the WVD drums.One of the company’s alternative in order to meet the current demand is to just purchase additional drums from another supplier and resell it at their normal selling price, instead of buying an additional welding machine (Alternative 1).Another alternative suggested by the management is to produce bike frames which will enable them to not only maximize their welding machine but will also enable them to hit their target profit margin (Alternative 2).Relevant Case FactsTotal available welding hours per year                                        2,000WVD Drum, welding time requirement (hours)                                    0.4WVD Drum, total number of units produced per year                        5,000WVD Drum, annual demand                                                6,000WVD Drum, selling price per unit                                        $149.00WVD Drum, variable manufacturing overhead per unit                        $1.35WVD Drum, variable selling and administrative expenses per unit        $0.75Number of WVD-type drums that Harcor Industries, Inc. can provide        4,000        Price of WVD-type drum from Harcor Industries, Inc.                        $138.00Bike frame, welding time requirement (hours)                                     0.5Bike frame, annual demand                                                1,600Bike frame, selling price per unit                                        $239.00Bike frame, variable manufacturing overhead per unit                        $1.90Bike frame, variable selling and administrative expenses per unit                $1.30All of the  company’s employee – direct and indirect – are paid for full 40-hour workweeks Manufacturing overhead consists of fixed cost and variable costSelling and administrative expenses consists of fixed cost and variable costData provided by the accounting department:WVD DrumsSelling price per drum $  149.00 Cost per drumDirect materials $    52.10 Direct labor ($18 per hour)          3.60 Manufacturing overhead          4.50 Selling and administrative expenses        29.80         90.00 Margin per drum        59.00 Bike FramesSelling price per bike frame $  239.00 Cost for bike frameDirect materials $    99.40 Direct labor ($18 per hour)        28.80 Manufacturing overhead        36.00 Selling and administrative expenses        47.80      212.00 Margin per bike frame$     27.00