1. Case 14-62 : Sportway Corporation
From book : Managerial Accounting, 9ed , Hilton
Group 3 – Executive January 2011:
-Bob C Hutagaol
-Slamet Adiwiyono
-Wahyu Priana

2. The Firm Back Ground
Sportway is a wholesale distributor supplying wide range of
moderately priced sports equipment to large chain stores.
Products:
60% purchased
40% manufactured
Sportway has a plastic department that is currently
manufacturing molded fishing tackle boxes.
Skate board and tackle box have been the bread and butter
for the firm.

3. Manufacturing tackle boxes
Sportway able to manufacture and sell 8,000 tackle boxes
annually. The selling price and cost associated to Sportway’s
tackle boxes are as follow:
Selling Price per Box $ 86.00
Costs per Box:
Molded Plastic $ 8.00
Hinges, Latches, Handle $ 9.00
Direct Labor ($15.00 per Hour) $ 18.75
Manufacturing Overhead $ 12.50
Selling and Administrative Cost $ 17.00 $ 65.25
Profit per Box $ 20.75
Sportway’s sales manager believes the firm could sell 12,000
tackle boxes if it had sufficient manufacturing capacity.

4. Purchasing tackle Boxes
The company has looked into the possibility of purchasing the
tackle boxes for distribution
Maple product, a steady supplier of quality products would be
able to provide up to 9,000 tackle boxes per year at a price of
$68.00 per box delivered to Sportway’s facility.
Total selling and administrative cost for the purchased tackle
box would be $10.00 per unit.

5. Manufacturing skate board
The production manager believes that Sportway could expect to sell
17,500 skate boards annually at a price of $45.00 per unit.
Selling Price per Skateboard $ 45.00
Costs per Skateboard:
Molded Plastic $ 5.50
Wheels, Hardware $ 7.00
Direct Labor ($15.00 per Hour) $ 7.50
Manufacturing Overhead $ 5.00
Selling and Administrative Cost $ 9.00 $ 34.00
Profit per Skateboard $ 11.00
Notes:
Direct labor is used as the application base for manufacturing overhead,
where $50,000 factory wide, fixed manufacturing over head included for
the current year.
$6.00 fixed overhead allocated to each unit regardless the unit produced
or purchased.

6. The Issue
Expanding market of skateboard and
increasing demand for tackle box which
exceed the production capacity
-- capacity constraint --

7. Requirements
1) Determine which of Sportway’s option makes the best
use of it’s scarce resource.
How many Skateboards & Tackle Boxes should be
manufactured?
How many Tackle Boxes should be purchased?
2) Calculate the improvement in Sportway’s total CM (If
adopt optimal strategy rather than continuing with status
quo).

8. Plastic Department
Production Capacity
Tackle Box Skateboard
Direct Labor Cost $ 18.75 $ 7.50
Direct Labor ($15.00 per Hour) $ 15.00 $ 15.00
Direct Labor Hour per unit 1.25 0.5
Maximum Production unit 8,000 20,000
Maximum Labor Hour 10,000 10,000
Capacity constrain = 10,000 labor hour. Plastic
Department could produce 8,000 units of tackle
boxes, OR 20,000 units of skate boards

9. Manufacturing Overhead Allocation
Tackle box
Calculating Manufacturing Overhead per unit for tackle box
Allocated Fixed Manufacuring overhead $ 50,000
Total Labor Hours 10,000
Manufacturing Overhead per Hour 5
Labor Hour per unit 1.25
Manufacturing Overhead per unit $ 6.25

10. Manufactured Tackle Box
Contribution Margin
Calculating CM per unit manufactured Tackle Box
Selling Price per Box $ 86.00
Variable Cost:
Molded Plastic $ 8.00
Hinges, Latches, Handle $ 9.00
Direct Labor ($15.00 per Hour) $ 18.75
Manufacturing Overhead per Unit $ 6.25
Selling and Administrative Cost $ 11.00
Total Variable Cost $ 53.00
Contribution Margin per Unit $ 33.00
Fixed cost:
Manufacturing Overhead $ 6.25
Selling and Administrative Cost $ 6.00
Total Fixed Cost $ 12.25
Net Profit per Box $ 20.75

11. Purchased Tackle Box
Contribution Margin
Calculating CM per unit purchased Tackle Box
Selling Price per Box $ 86.00
Variable Cost:
Buying Price per Box $ 68.00
Selling and Administrative Cost $ 4.00
Total Variable Cost $ 72.00
Contribution Margin per Unit $ 14.00
Fixed cost:
Selling and Administrative Cost $ 6.00
Total Fixed Cost $ 6.00
Net Profit per Box $ 8.00

12. Manufacturing overhead allocation
skateboard
Calculating Manufacturing Overhead per unit for skate board
Allocated Fixed Manufacuring overhead $ 50,000
Total Labor Hours 10,000
Manufacturing Overhead per Hour 5
Labor Hour per unit 0.5
Manufacturing Overhead per unit $ 2.50

13. Manufactured Skateboard
Contribution Margin
Calculating CM per unit manufactured Skate Board
Selling Price per Skateboard $ 45.00
Variable Cost:
Molded Plastic $ 5.50
Wheels, Hardware $ 7.00
Direct Labor ($15.00 per Hour) $ 7.50
Manufacturing Overhead $ 2.50
Selling and Administrative Cost $ 3.00
Total Variable Cost $ 25.50
Contribution Margin per Unit $ 19.50
Fixed cost:
Manufacturing Overhead $ 2.50
Selling and Administrative Cost $ 6.00
Total Fixed Cost $ 8.50
Profit per Box $ 11.00

14. Required #1
How many Skateboards & Tackle Boxes should
be manufactured? How many Tackle Boxes
should be purchased?
We have 2 alternatives to find the answer
Alternative 1 : Contribution Margin
Analysis
Alternative 2 : Linier programming
approach

15. Required#1 : Alt 1
Contribution Margin Analysis
Tackle Box Skateboard
Produced Purchased Produced
CM per Unit 33.00 14.00 19.50
Produced in Plastic Department
We compare CM for this both product which one
have more contribution to using manufacturing
facilities
But , We can not compare directly, we have to convert to
CM per hour
Then compare them

16. Required#1 : Alt 1
Tackle Box Skateboard
Produced Produced
CM per Hour 26.40 39.00
CM per hour for skateboard is greater than Tackle box.
Meaning: Using our manufacturing facilities to produce
skateboard is more profitable than produce Tackle box
According those, We can decide to produce 17,500
units skateboard, available capacity we use to produce
tackle box
17,500 units skateboard use : 17,500 x 0.5 Hours = 8,750
hours
Available hour = 10,000 – 8,750 = 1,250 hours
1,250 hours can produce tackle box : 1,250/1.25 = 1,000
unit tackle box produce

17. Required#1 : Alt 1
We can not fulfill 12,000 units tackle box, because we
can purchase only 9,000 units from outside (maple
firm)
Summary decision to maximize profit with alternative 1 :
Skateboard produce = 17,500 units
Tackle Box produce = 1,000 units
Tackle Box purchase = 9,000 units

18. Required#1 : Alt 2
Using Linier Programming (LP) Approach
Objective : 33 x1 + 14 x2 + 19.50 x3 Maximize
Where :
x1 = Produced Tackle Box
x2 = Purchase Tackle Box
x3 = Produced Skateboard
Constraint :
1. Labor : 1.25 x1 + 0.5 x3 =< 10,000 hrs
2. Sales 1 : x1+x2 =< 12,000 units
3. Sales 2 : x3 =< 17,500 units
4. Outsource : x2 =< 9,000 units
5. Capacity 1 : x1 =< 8,000 units
6. Non negative : x1, x2, x3 >= 0

19. Required#1 : Alt 2
To solve above model, we use solver in excel, develop the model
in excel
Optimal product mix
Changing Cell
x1 Tackle Box produce = 1,000 units
Objective
x2 Tackle Box purchase = 9,000 units
x3 Skateboard produce = 17,500 units
Constraint

20. Required #2
Current Contribution Margin:
Product Qty CM per unit Total
Tackle Box 8,000 units $ 33.00 $ 264,000
Optimal Strategy :
Product Qty CM per unit Total
Tackle Box, Produced 1,000 units $ 33.00 $ 33,000
Tackle Box, Purchase 9,000 units $ 14.00 $ 126,000
Skateboard 17,500 units $ 19.00 $341,250
Total CM = $ 500,250
CM Improvement : 500,250 – 264,000 = $ 236,250

21. Thank You