You are the product line manager for a snow board manufacturing company based in Provo, Utah
You are the product line manager for a snow board manufacturing company based in Provo, Utah. As product line manager for the company’s Xtreme line, you are ultimately responsible for all aspects of production as well as the profitability of the line. You have direct authority over the production, marketing and sales of the company’s Xtreme line of snowboards. The first quarter sales figures are in and you see that sales are down and in several key markets you no longer hold the #1 position. You are concerned that when you attend the quarterly management meeting that this poor performance is going to be a topic of much discussion. Several months ago, you received information from an overseas manufacturer that can manufacture the bindings for the snow board at a fraction of your current cost to produce them in-house. This will lower the cost to produce the Xtreme line allowing the company to increase their margin, lower prices to customers or some combination of both. Consequently, you believe it is now time to revisit that correspondence and start putting together a plan to address the lackluster Q1 earnings report.
What qualitative and quantitative factors will you have to consider before recommending that the company outsource the production of the binding component of the Xtreme snow boards?
The quantitative and qualitative factors are the quality of products, the quantity being outsourced, the capability of the outsourcing vendor, and the vendor’s warehouse. Also, the machinery needed to manufacture the products at the vendor’s warehouse is a cost that needs to be considered and the cost of transporting products, the time it will take the vendor to manufacture these products. They will also have to consider the employees who would lose their position by going into an outside source to do the manufacturing. The position of the current employees will also need to be considered.
What accounting information will you need in order to make the best decision for the company? When identifying the accounting information needed, indicate the following:
The accounting information needed to make the best decision is the volume of products, the unit costs for all products, the price of the product, assembly cost, wages paid to employees manufacturing products, and product profits.
a. Is the information you need financial or managerial in nature?
The information needed is financial in nature.
b. How will you use the accounting information in evaluating the decision?
It will be used to compare the costs and profits to the outsourced products. Also, look at if outsourcing will have a higher margin on products therefore creating an increase in profit.
Identify any potential risks associated with making this decision and how those risks can be addressed.
Some risk in making such a decision will be that the business will no longer have control of the time in which products are manufactured and this could cause delays in sales. Also, what if the vendor is not financially stable and they can’t afford to produce the product in the time promised which will cause the company to lose money. The risk can be addressed by having a general manager that would go to the vendor’s warehouse a few times in a month to overview that products are being produces in a timely manner and also check the quality of the merchandise.