Montana Pen Company manufactures a full line of premium writing instruments. It has 12 different styles and within each style, it offers ball point pens, fountain pens, mechanical pencils, and a roller ball pen. Most models also come in three finishes-gold, silver, and black matte. Montana Pen's Bangkok, Thailand, plant manufactures four of the styles. The plant is currently producing the gold clip for the top of one of its pen styles, no. 872. Current production is 1,200 gold no. 872 pens each month at an average cost of 185 baht per gold clip. (One U.S. dollar currently buys 35 baht.) A Chinese manufacturer has offered to produce the same gold clip for 136 baht. This manufacturer will sell Montana Pen 400 clips per month. If it accepts the Chinese offer and cuts the production of the clips from 1,200 to 800, Montana Pen estimates that the cost of each clip it continues to produce will rise from 185 baht to 212.5 baht per gold clip. Required: a. Should Montana Pen outsource 400 gold clips for pen style no. 872 to the Chinese firm? Provide a written justification of your answer. b. Given your answer in part (a), what additional information would you seek before deciding to outsource 400 gold clips per month to the Chinese firm?
Montana Pen Company manufactures a full line of premium writing instruments. It has 12 different styles and within each style, it offers ball point pens, fountain pens, mechanical pencils, and a roller ball pen. Most models also come in three finishes-gold, silver, and black matte. Montana Pen's Bangkok, Thailand, plant manufactures four of the styles. The plant is currently producing the gold clip for the top of one of its pen styles, no. 872. Current production is 1,200 gold no. 872 pens each month at an average cost of 185 baht per gold clip. (One U.S. dollar currently buys 35 baht.) A Chinese manufacturer has offered to produce the same gold clip for 136 baht. This manufacturer will sell Montana Pen 400 clips per month. If it accepts the Chinese offer and cuts the production of the clips from 1,200 to 800, Montana Pen estimates that the cost of each clip it continues to produce will rise from 185 baht to 212.5 baht per gold clip. Required: a. Should Montana Pen outsource 400 gold clips for pen style no. 872 to the Chinese firm? Provide a written justification of your answer. b. Given your answer in part (a), what additional information would you seek before deciding to outsource 400 gold clips per month to the Chinese firm?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Montana Pen Company manufactures a full line of premium writing instruments. It has 12 different
styles and within each style, it offers ball point pens, fountain pens, mechanical pencils, and a roller
ball pen. Most models also come in three finishes-gold, silver, and black matte. Montana Pen's
Bangkok, Thailand, plant manufactures four of the styles. The plant is currently producing the gold
clip for the top of one of its pen styles, no. 872. Current production is 1,200 gold no. 872 pens each
month at an average cost of 185 baht per gold clip. (One U.S. dollar currently buys 35 baht.) A
Chinese manufacturer has offered to produce the same gold clip for 136 baht. This manufacturer will
sell Montana Pen 400 clips per month. If it accepts the Chinese offer and cuts the production of the
clips from 1,200 to 800, Montana Pen estimates that the cost of each clip it continues to produce will
rise from 185 baht to 212.5 baht per gold clip.
Required:
a. Should Montana Pen outsource 400 gold clips for pen style no. 872 to the Chinese firm? Provide a
written justification of your answer.
b. Given your answer in part (a), what additional information would you seek before deciding to
outsource 400 gold clips per month to the Chinese firm?
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