Task #1 – Steel or Titanium

Issue: Whether to change product material from titanium to steel

Analyse:

Titanium Contribution Margin

Price 225

Direct materials -144

Direct Labour -11

Variable Manufacturing overhead -7

Contribution Margin $63

Steel Contribution Margin

Best Case Worst Case

Price 178 178

Direct materials -84 -100.8

Direct Labour -5.5 -5.5

Variable Manufacturing overhead -7 -7

Contribution Margin $81.5 $64.7

Therefore, with or without the potential price increase of steel, the contribution margin of using steel is
higher than using the titanium.

Recommendation:

DDL should switch to using steel.

Task #2 - Manufacture VS Outsource of Dog Crate

Outsource the dog crate:

Price 179 (895,000 / 5000)

Safety costs 4

Taxes 5 (25000 / 5000)

Direct labour 5.5 (22 x 0.25)

Variable overhead 3.5 ($14 x 0.25)

Cost Per Unit 197

Manufacture the dog crate:

Direct Material 155

Safety costs 4

Direct labour 22

Variable overhead 14

Cost Per Unit 195

Therefore, the Manufacture cost per unit (195) is lower than outsourcing cost per unit (197)

Recommendation:

Company should manufacture the crate by themselves.

Task #3 – Whether to add Dog Crate

Dog Crate

Selling Price of Dog Crate 305

Cost per unit -195

Contribution Margin 110

Contribution Margin for Seat Belt as calculated in task 1 = 63

Recommendation:

Since the margin of dog crate is higher, the company should add dog crate.