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Treasury Operation's management thought that serving AT&T check printing needs in the future would require a major re-engineering of the check issuance process and that replacement of the printers was a first step. The current systems and equipment, for example, could not meet requirements for printing checks as part of AT&T marketing promotions. The marketing team, therefore, was forced to use outside services to print these checks. While the outside services met most of the requirements, the accounting transactions that were associated with these checks were often incorrect, and check reconciliation for these checks was almost impossible. Treasury Operations believed that they could eliminate the use of outside services and improve the duality and costs of their current service if they purchased print equipment that was computer controlled. In addition, it was important that the magnetic ink character recognition (MICR) line that was printed at the bottom of the check be of high quality, because banks charge extra for processing checks with unreadable MICR lines.

The team looking into new printers had identified Siemens, Delphax, Xerox, IBM, and NCR as the vendors that had printers that should be considered. Team members then decided on the following six criteria:

1. Features: Documented the technical features of each printer, maintenance availability, and requirements.

2. User rating: Documented results of a survey of users of each of the printers.

3. Pros/cons: Documented overall team observations.

4. Cost: Cost analysis included purchase of printers, maintenance, supplies, and software.

5. MICR quality: Conformance to MICR standards.

6. Print quality: Conformance to print quality standards.

Criteria	Siemens	Delphax	Xerox	IBM	NCR
Features	9.9	6.6	5.2	7.7	8.2
User Ratings	8.0	8.3	6.7	8.6	8.6
Pros/Cons	10.0	1.0	5.0	8.0	8.0
Cost	10.0	6.0	4.0	2.0	8.0
MICR Quality	9.7	5.4	6.0	9.4	9.4
Print Quality	9.7	5.7	8.0	8.4	8.6
TOTAL	57.3	33.0	34.9	44.1	50.8
RANKING	1	5	4	3	2

DISCUSSION QUESTIONS

1. Is it appropriate taht in the final analysis MICR Quality was given the same weight as Cost?
   
   
   
   

2. Recompute the comparisons, using the following weight factors: Features 15%, User Ratings 15%, Pros/Cons 15%, Cost 30%, MICR Quality 12.5%, Print Quality 12.5%. Does this change the end result?
   
   
   
   

During 1992, sales of parts and accessories to the chain exceeded $5,000,000. Management of Blue & Gray believed that sales to the chain contributed significantly to overhead and profit as well as to stable employment. However, during peak periods of sales, the company purchased parts and accessories from smaller firms for use in its own product line as well as to complete orders for the chain.

In March 1992, the treasurer, production manager, and purchasing agent met to decide whether to produce or purchase from an outside supplier 2,000 reduction gears, which were part of an order for the retail chain. The Blue & Gray cost accounting system recorded actual material costs. However, product costing of direct labor was at a standard rate per hour. The treasurer recognized that this use of a standard rate per hour for all operations resulted in some error in costing individual parts. He believed, however, that the standard labor rate was accurate enough for practical purposes, since actual labor rates did not vary widely and, in most instances, parts passed through similar machining operations.

Both fixed and variable overhead were charged to products at the standard rate per direct labor hour. The current labor rates and the overhead accounts, as they were grouped by the company according to their fixed or variable characteristics, are shown below.

The production manager, Duncan Gray, stated that Blue & Gray could make the gears in a continuous production run at 200 per hour. Furthermore, there was sufficient free machine time that other production would not be influenced unfavorable by the addition of this order. The material for the gears, he reported, would cost $1,000.

The purchasing agent, Elwood Blue, observed that a smaller company would sell the gears to Blue & Gray at a price of $0.6322 per gear. Vendor evaluation personnel have given the firm a high rating. The final decision on what to do is up to Elwood, the purchasing agent.

Direct labor			$15.00
Variable overhead Plant supervision (above basic budget) Plant indirect labor (material handling) Supplies Engineering Cost accounting of labor Heat, light, and power Workman's comp. taxes Health insurance Employer's Social Security contribution			$7.00
Fixed overhead Administrative expense Selling expense Taxes and insurance - general Factory superintendent Plant supervision - basic budget Repairs and depreciation - building Equipment depreciation and obsolescence			$6.00
Total per hour			$28.00

DISCUSSION QUESTIONS

1. What should Elwood recommend: make or buy?

2. How should he justify his decision?

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