Muenster Pump Case Study

Topics: Cost accounting, Costs, Outsourcing Pages: 3 (564 words) Published: April 15, 2012
Major Facts:
A. Muenster Pump Company has manufactured high-quality agricultural pumps for over 40 years.

B. The firm’s only plant is in the small Midwestern city of Muenster and is the city’s largest employer

C. Bob Dorf, president of the firm, is the grandson of Emil Dorf, the founder.

D. Bob along with key personnel live in or near the city of Muenster and cordial relations exist between the firm and the city officials

E. The firm has always been as self-sufficient as possible. Shortly after setting up the business, Emil Dorf established a foundry to cast pump housings and related items.

F. Terri (Bob’s cousin) is the purchasing manager for Muenster. Bob consolidated buying functions previously performed by himself and other members. Materials cost has come down from 60% of the cost of sales to 50% in two years since Terri took responsibility for purchasing.

G. Terri was contacted by a rep from Union Foundry. The rep claimed that new developments in casting pouring allowed his firm to offer extremely attractive prices.

H. Terri requested a price on the L-1012 case housing (Muenster’s most popular size). The L-1012 represents 60% of Muenster’s demand for casting housing and the pump that incorporated the L-1012 is sold to distributors for $500. Within a week Terri received a letter from Union Foundry quoting a price of $90 F.O.B Muenster. Delivery was promised in 120 days after receipt of first order. Thereafter, delivery would be made in 60 days after receipt of an order. Minimum orders were established as 100 units. Terry also received quotes from two other foundries and received quotes of $94 and $98 F.O.B Muenster.

I. Ned Dorf (Terri’s uncle) is not enthusiastic about Terri’s efforts. He feels that the quality of the in-house case housings is superior that that of the competitors and quality is an important component of the company’s success. Ned feels that in-house production of the L-1012 case housing...
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