1.

What is the difference in profit under each of the alternatives if the clocks are to be sold
for P14.50 each to Kmart?

Make Technolgy Buy Silver Star Buy Alpha

Plus

Sales Revenue P14.50 P14.50 P14.50

Variable Manufacturing Cost:
Circuit Board 2.00 0 0
Plastic Case 0.75 0 0
Alarms (4 @ P .10 each) 0.40 0 0
Labor 3.00 0 0
Overhead 0.50 0 0
Purchase Cost 0 11.00 4.00
Fixed Manufacturing Cost: (P5000/ 5000) 1.00 1.00
_________ _________ _________
Total Manufacturing Cost 6.65 12.00 5.00

(P14.50 6.65) (14.50 12.00) (14.50 5.00)

Profit per Unit = P 7.85 = P 2.50 = P 9.50

X 5000 units X 5000 units X 5000 units

Total Profit P39,250 P12,500 P47,500

The P5000 in the fixed cost is still the cost stated in the problem that will still be incurred even if
Technology Plus does not manufacture them.

The company will make the most profit if the clocks are purchased from Alpha Company. The
company will make P35,000 (47,500 12,500) less if they decided to purchase it in Silver Star.

2. What are the most important nonfinancial factors that Technology Plus should consider
when making this decision?

Several important nonfinancial factors are described in the case. The company as stated are
having problem with the circuit board which means they had a hard time in manufacturing the
said product. It was also stated that it will need 6 months in order for it to be manufactured.
Since Kmart is threatening to rescind all their orders if they do not meet their demands, they
had to let another company manufacture the said clocks.

If we look at the purely financial stand point, we can see that Alpha Company is the best
prospect as it gives the company the highest profit with the cheapest cost. Also, the owner is an

jrtavera
electronic engineer nearly assuring that the quality of the products will be good. However, a
problem lies in the company as Alpha is unstable and looks like would not remain in the
business any longer.

In our viewpoint, it would be wise to purchase from Alpha this single order to satisfy the
demands of Kmart and then look for another manufacturer or, if they had solved the problem
in six months, they manufacture the clock themselves. If they are looking for good term
relationship which can also bring them good profit, a future plan with a partnership with Silver
Star sounds very plausible.

3. What do you think Technology Plus should do in regard to the Kmart order? What should
it do in regard to continuing to manufacture the multi-alarm alarm clocks.

The wise decision for Technology Plus is to complete the order of Kmart by purchasing from
Alpha. Then after they had to discontinue the production of the product as it is not profitable
anymore unless their revision within six months would prove well.

jrtavera