Case 

3:   BOB MOGIELNICKI 
 
On receiving his MBA degree, Bob Mogielnicki in June 1995 went to work
for the Brandywine Corporation, a medium-sized manufacturer of electrical
controls and electronic devices.  Although his undergraduate degree was in
mechanical engineering, summer jobs and a brief stint as an engineer before
entering military service had convinced Bob that he was not interested in
engineering career.  Accordingly, after completing his three-year tour in the Air
Force, he entered business school in 1993. 
What particularly attracted Bob to the job offer from Brandywine was the
fact that it presented an opportunity to assume line responsibilities after a brief
training period.  The position in question was that of supervisor of the parts
fabrication shop at the company’s San Jose plant. 
In 1995, then, Bob Mogielnicki assumed his new duties.  At that time, the
staff of the parts fabrication shop consisted of 10 machine operators and two clerks
in addition to the supervisor.  The shop was producing five parts which were used
by other departments of the San Jose plant in the assembly of final products.  A
statement of costs incurred by the parts fabrication shop during the first week of
Bob’s supervision is attached as Exhibit 1. 
When he took over the parts fabrication shop, Bob was told by the plant
manager, Mr. Wallis, that it was his responsibility to see that the five parts being
produced by the shop were acquired at the lowest possible cost to the company. 
For this reason, he had the authority to buy all or any of these parts from outside
sources if he found this to be more advantageous to the company.  
In order to carry out his responsibility for “make-or-buy” decisions, Bob felt
he heeded more cost information than was supplied by the weekly cost statement
(such as Exhibit 1).  He discussed his needs with the plant accountant, Mr.
Dreyfus, and together they agreed on a format for a second weekly report, which
would show the actual cost of producing 100 each of the parts during the week in
question.  The first such report, corresponding to the cost statement of Exhibit 1, is
attached as Exhibit 2.  The figures in Exhibit 2 were obtained as follows: 
1. Direct labor/hundred.  Each machine operator kept a time sheet
indicating the time (in hours and tenths of an hour) he spent on each
part.  These times were accumulated for each part and costed at the
direct labor rate of $3.50/hour.  The total cost for each part was then
divided by the amount of production. 
2. Direct materials/hundred.  When materials were drawn from
the storeroom, an issue slip was prepared indicating the amount drawn
and the part on which the materials were to be used.  The amounts
 were totaled for each part and the totals divided by the amount of
production. 
3. Overhead/hundred.  The total of all overhead costs charged to
the department was divided by the number of direct labor hours to
produce a cost per hour.  This figure was multiplied by the number of
direct labor hours charged to each part and the product was then
divided by the amount of production. 
After receiving the information in Exhibit 2 from Mr. Dreyfus,
Bob Mogielnicki solicited bids on each of the five parts from several
small shops in the San Jose area.  The lowest bid received on each part
was as follows: 
Part Number Lowest Bid 
                       101 ………………………………………. $65.00 
         102 ……………………………………….   90.00 
         103 ………………………………………    37.50 
                                                                   104 ……………………………………….    60.00 
                                                                    105 ……………………………………….  34.50 
 
Clearly, then, it was more advantageous to the company to continue making
each part in its shop. 
 
In 1996, demand for Brandywine’s products fell sharply because of a
business recession.  This decline was naturally reflected in the work load in the
parts fabrication shop.  Because of the reduced work load, Bob Mogielnicki had
laid off one machine operator and had transferred another to performing
maintenance of equipment which had been deferred during the period of higher
production. 
  
When Bob received his product cost report for the week of April 14, 1996,
shown in  Exhibit 3, he discovered that costs were up on all five parts, and that part
103, in particular, now cost more to make than the bid of $37.50 per hundred he
had received.  He called up the owner of the shop who had made that bid and asked
him for an updated bid.  The owner responded with the bid of $36 per hundred,
saying his business was off and so he was willing to shave hid earlier price a bit if
it would help to keep his shop busy.  Bob promptly accepted the reduced offer and
asked the purchasing agent of the San Jose plant to issue a purchase order to the
outside source for 4,000 units (about a two-week supply at the current usage rate). 
Bob estimated that his decision would save Brandywine about $140. 
 
 The cost reports for the week of April 28, 1996, (see Exhibit 4) showed a
further rise.  Once again Bob checked with the sources of earlier bids, this time on
parts 102 and 105, and learned that in both cases the bidders were sticking by their
earlier quotes. 
 
Question:  What should Bob Mogielnicki do with regards to parts 102 and 105? 
 
 
Exhibit 1 
 
Bob Mogielnicki 
Cost Statement for Week of September 16, 1995 
 
Prime Cost: 
Labor ……………………………………………….. $1,397.56 
Materials …………………………………………….   3,116.80 
      Total Prime Cost ………………………………    $4,514.36 
 
Departmental Overhead: 
Departmental supervision and services …………….      1,002.16 
Depreciation ………………………………………...      1,200.00 
        Total Departmental overhead ……………………   1,202.16 
 
General Overhead …………………………………………….    1,500.00 
 
Total Costs …………………………………………………….  $8,216.52 
 
 
 
Exhibit 2 
 
Bob Mogielnicki 
Product Cost Report of September 16, 1996 
 
                                                                        Cost per 100 units of part umber 
Cost Element:                      101            102             103              104              105 
                  Labor………………..$  8.48         $13.30         $ 5.25         $  7.33         $  4.31 
                  Material …………….  18.40           24.00           14.80          17.20           13.60 
                      Total Prime Cost      26.88           37.30           20.05          24.53            17.91 
             Overhead……………….  22.40           35.15           13.88          19.38            11.39 
                      Total cost ………...$49.30         $72.45         $33.93        $43.91          $29.30 
 

Exhibit 3 
 
Bob Mogielnicki 
Product Cost Report for Week of April 14, 1996 
 
 
                                                                           Cost per 100 Units of Part No. 
Cost Element:                         101              102              103              104               105 
                  Labor ………………… $  9.02          $14.00         $  5.60         $  7.82         $  4.33 
                  Material ………………   18.43            24.01           14.78           17.20            13.59 
                     Total prime cost ……. $27.45          $38.01        $20.38          $25.02         $ 17.92 
                  Overhead ……………… 30.92            48.00           19.20           26.80            14.86 
                       Total cost …………. $58.37          $86.01         $39.58         $51.82          $32.78 
              Production (100 units) …..     26                 32                 20                30                 21 
 
 
 
 
 
Exhibit 4 
 
Bob Mogielnicki 
Product Cost Report for Week of April 28, 1996 
 
 
                                                                               Cost per 100 Units of Part No. 
Cost Element                              101              102              103              104             105 
                  Labor ………………….   $  8.68         $13.33                             $  7.50         $  4.50 
                  Material ……………….     18.43           24.00                               17.20           13.55 
                     Total Prime Cost …….   $27.11        $37.33                             $24.70          $18.05 
             Overhead ………………….     37.60          58.00                               32.14           18.00 
                     Total Cost ……………   $64.71        $95.33                             $56.84         $36.05  
             Production (100 units) ……..       25              30                                     28               
20