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Prepare a one-page summary/recommendation on your reading of the case.

Prepare a one-page summary/recommendation on your reading of the case.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Prepare a one-page summary/recommendation on your reading of the case.

N 1 L 1 2. I I 11 Angel City Trailer Works 4 IM I M Review U 1 6 View LE I INE 7. Acrobat I 8 I IN I 10. I 11. I 12. I 1 131 U 141 15 1 16 1 176 1. 18. Vincent Thomas, materials manager at Angel City Trailer Works, Inc. in San Pedro, CA, was considering a proposal from his purchasing agent to outsource manufacturing for an outrigger bracket. It was the end of April and Mr. Thomas had to evaluate the proposal and make a decision regarding whether to proceed. COMPANY BACKGROUND Angel City Trailer Works, Inc. (ACTW) manufactures trailers for highway transport trucks. The company is comprised of three divisions: Trailer Works, Sandblast & Paint, and Metal Fabrication Divisions. Each division operates separately, but manufacturing operations between each are highly integrated. The Metal Fabrication Division produces most of the component parts for the trailers, the Trailer Works Division performs the assembly operations, and the Sandblast & Paint Division is responsible for completing the sandblasting and final painting operation. Angel City Trailer Works manufactures approximately 200 trailers per year, with about three-quarters produced during the months of January to May THE OUTRIGGER BRACKET The outrigger bracket, part number ORBKT1, is an accessory that can be used to secure an oversized container to a trailer. The bracket consists of four component parts welded together, and each trailer sold by Angel City Trailer Works has 20 brackets: 10 per side. The Metal Fabrication Division of ACTW is presently manufacturing the outrigger bracket. The subassembly parts (ORBKT-1, ORBKT-2, ORBKT-3, and ORBKT-5) are processed on a burn table, which cut the raw material to size. The final assembly operation WS-ORBKT, is performed at a manual welding station. Manufacturing lead time for the outrigger bracket is 10 days. However, the Metal Fabrication Division has been able Activate V to coordinate supply and production with assembly operations. Consequently, finished inventory levels of the outrigger bracket are kept to a minimum and safety stock levels are negligible. Angel City Trailer Works' inventory holding (aka carrying) costs are 25% of the inventory value per year. English (United Kingdom) 11 63°F Haze
Transcribed Image Text:N 1 L 1 2. I I 11 Angel City Trailer Works 4 IM I M Review U 1 6 View LE I INE 7. Acrobat I 8 I IN I 10. I 11. I 12. I 1 131 U 141 15 1 16 1 176 1. 18. Vincent Thomas, materials manager at Angel City Trailer Works, Inc. in San Pedro, CA, was considering a proposal from his purchasing agent to outsource manufacturing for an outrigger bracket. It was the end of April and Mr. Thomas had to evaluate the proposal and make a decision regarding whether to proceed. COMPANY BACKGROUND Angel City Trailer Works, Inc. (ACTW) manufactures trailers for highway transport trucks. The company is comprised of three divisions: Trailer Works, Sandblast & Paint, and Metal Fabrication Divisions. Each division operates separately, but manufacturing operations between each are highly integrated. The Metal Fabrication Division produces most of the component parts for the trailers, the Trailer Works Division performs the assembly operations, and the Sandblast & Paint Division is responsible for completing the sandblasting and final painting operation. Angel City Trailer Works manufactures approximately 200 trailers per year, with about three-quarters produced during the months of January to May THE OUTRIGGER BRACKET The outrigger bracket, part number ORBKT1, is an accessory that can be used to secure an oversized container to a trailer. The bracket consists of four component parts welded together, and each trailer sold by Angel City Trailer Works has 20 brackets: 10 per side. The Metal Fabrication Division of ACTW is presently manufacturing the outrigger bracket. The subassembly parts (ORBKT-1, ORBKT-2, ORBKT-3, and ORBKT-5) are processed on a burn table, which cut the raw material to size. The final assembly operation WS-ORBKT, is performed at a manual welding station. Manufacturing lead time for the outrigger bracket is 10 days. However, the Metal Fabrication Division has been able Activate V to coordinate supply and production with assembly operations. Consequently, finished inventory levels of the outrigger bracket are kept to a minimum and safety stock levels are negligible. Angel City Trailer Works' inventory holding (aka carrying) costs are 25% of the inventory value per year. English (United Kingdom) 11 63°F Haze
16 17 118 THE OUTSOURCING DECISION In an effort to reduce costs, the purchasing agent, Debbie Jones, who reported to Vincent Thomas, solicited quotes from three local companies to supply the outrigger bracket. Gaffey Street Steel Fabricators (Gaffey Street), a current supplier to Angel City Trailer Works for other components, offered a competitive bid, with a cost of $122.34, FOB Angel City Trailer Works' loading dock. Vincent met with the controller, Mike A. Lorry, who provided a breakdown of the manufacturing costs for the outrigger bracket. Looking at the Excel spreadsheet, Mike commented: "These are based on estimates of our costs from this year's budget. Looking at the material, labor, and overhead costs, I would estimate that the fixed costs for this part are in the area of about 18%. Keep in mind that it costs us about $55 on average to place an order with our vendors. Part ORBTK 1 ORBTK 2 ORBTK 3 ORBTK 4 WS- ORBTK ACT Manufacturing costs $20.60 $18.78 $46.27 $12.07 $60.83 Total $158.55 Vincent expected that Angel City Trailer Works would have to arrange for extra storage space if he decided to outsource the outrigger bracket to Gaffey Street, who had quoted delivery lead time of four weeks. Because Gaffey Street was local and had a good track record, Vincent didn't expect the need to carry much safety stock, but the order quantity issue still needed to be resolved. Angel City Trailer Works is operating in a competitive environment and Vincent has been asked by the division general manager to look for opportunities to reduce costs. As he sat down to review the information, Vincent knew that he should make a decision quickly if it was possible to cut costs by outsourcing the outrigger bracket. Activa Go to Se 63°F F
Transcribed Image Text:16 17 118 THE OUTSOURCING DECISION In an effort to reduce costs, the purchasing agent, Debbie Jones, who reported to Vincent Thomas, solicited quotes from three local companies to supply the outrigger bracket. Gaffey Street Steel Fabricators (Gaffey Street), a current supplier to Angel City Trailer Works for other components, offered a competitive bid, with a cost of $122.34, FOB Angel City Trailer Works' loading dock. Vincent met with the controller, Mike A. Lorry, who provided a breakdown of the manufacturing costs for the outrigger bracket. Looking at the Excel spreadsheet, Mike commented: "These are based on estimates of our costs from this year's budget. Looking at the material, labor, and overhead costs, I would estimate that the fixed costs for this part are in the area of about 18%. Keep in mind that it costs us about $55 on average to place an order with our vendors. Part ORBTK 1 ORBTK 2 ORBTK 3 ORBTK 4 WS- ORBTK ACT Manufacturing costs $20.60 $18.78 $46.27 $12.07 $60.83 Total $158.55 Vincent expected that Angel City Trailer Works would have to arrange for extra storage space if he decided to outsource the outrigger bracket to Gaffey Street, who had quoted delivery lead time of four weeks. Because Gaffey Street was local and had a good track record, Vincent didn't expect the need to carry much safety stock, but the order quantity issue still needed to be resolved. Angel City Trailer Works is operating in a competitive environment and Vincent has been asked by the division general manager to look for opportunities to reduce costs. As he sat down to review the information, Vincent knew that he should make a decision quickly if it was possible to cut costs by outsourcing the outrigger bracket. Activa Go to Se 63°F F
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