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  

1. Overview

TufStuff, 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).

1. Relevant Case Facts

• Total available welding hours per year                                        2,000
• WVD Drum, welding time requirement (hours)                                    0.4
• WVD Drum, total number of units produced per year                        5,000
• WVD Drum, annual demand                                                6,000
• WVD Drum, selling price per unit                                        $149.00
• WVD Drum, variable manufacturing overhead per unit                        $1.35
• WVD Drum, variable selling and administrative expenses per unit        $0.75
• Number of WVD-type drums that Harcor Industries, Inc. can provide        4,000        
• Price of WVD-type drum from Harcor Industries, Inc.                        $138.00
• Bike frame, welding time requirement (hours)                                     0.5
• Bike frame, annual demand                                                1,600
• Bike frame, selling price per unit                                        $239.00
• Bike frame, variable manufacturing overhead per unit                        $1.90
• Bike frame, variable selling and administrative expenses per unit                $1.30
• All of the  company’s employee – direct and indirect – are paid for full 40-hour workweeks
• Manufacturing overhead consists of fixed cost and variable cost
• Selling and administrative expenses consists of fixed cost and variable cost

Data provided by the accounting department:

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