Technology Plus manufactures private-label small electronic products, such as 
alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. 
Some of the products are sold as sets, and others are sold individually. Products are studied 
as to their sales potential, and then cost estimates are made. The Engineering Department 
develops production plans, and then production begins. The company has generally 
had very successful product introductions. Only two products introduced by the 
company have been discontinued. 
One of the products currently sold is a multi-alarm alarm clock. The clock has four 
alarms that can be programmed to sound at various times and for varying lengths of time. 
The company has experienced a great deal of difficulty in making the circuit boards for the 
clocks. The production process has never operated smoothly. The product is unprofitable 
at the present time, primarily because of warranty repairs and product recalls. Two models 
of the clocks were recalled, for example, because they sometimes caused an electric 
shock when the alarms were being shut off. The Engineering Department is attempting to 
revise the manufacturing process, but the revision will take another 6 months at least. 
The clocks were very popular when they were introduced, and since they are privatelabel, 
the company has not suffered much from the recalls. Presently, the company has 
a very large order for several items from Kmart Stores. The order includes 5,000 of the 
multi-alarm clocks. When the company suggested that Kmart purchase the clocks from 
another manufacturer, Kmart threatened to rescind the entire order unless the clocks 
were included. 
The company has therefore investigated the possibility of having another company 
make the clocks for them. The clocks were bid for the Kmart order based on an estimated 
$6.65 cost to manufacture: 
Circuit board, 1 each @ $2.00 $2.00 
Plastic case, 1 each @ $0.75 0.75 
Alarms, 4 @ $0.10 each 0.40 
Labor, 15 minutes @ $12/hour 3.00 
Overhead, $2.00 per labor hour 0.50 
Technology Plus could purchase clocks to fill the Kmart order for $11 from Silver 
Star, a Korean manufacturer with a very good quality record. Silver Star has offered to 
reduce the price to $7.50 after Technology Plus has been a customer for 6 months, placing 
an order of at least 1,000 units per month. If Technology Plus becomes a “preferred 
customer” by purchasing 15,000 units per year, the price would be reduced still further 
to $4.50. 
Broadening Your Perspective 259 
Alpha Products, a local manufacturer, has also offered to make clocks for Technology 
Plus. They have offered to sell 5,000 clocks for $4 each. However, Alpha Products has 
been in business for only 6 months. They have experienced significant turnover in their 
labor force, and the local press has reported that the owners may face tax evasion charges 
soon. The owner of Alpha Products is an electronic engineer, however, and the quality of 
the clocks is likely to be good. 
If Technology Plus decides to purchase the clocks from either Silver Star or Alpha, 
all the costs to manufacture could be avoided, except a total of $5,000 in overhead costs 
for machine depreciation. The machinery is fairly new, and has no alternate use. 
Instructions 
(a) What is the difference in profit under each of the alternatives if the clocks are to be 
sold for $14.50 each to Kmart? 
(b) What are the most important nonfinancial factors that Technology Plus should consider 
when making this decision? 
(c) 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?