Albatross Unit 3 Assignment

1332 WordsNov 3, 20116 Pages
Introduction This case mainly deals with the varying types of operational challenges that Albatross Anchor is currently facing. The pricing is not a major issue for the organization and it is able to sell its products at a consistent market rate; however it is unable to realise its full profit potential due to the presence of a lot of operational inefficiencies. It is evident that if the firm is able to overcome all of these challenges, it can make the same level of profits as that of their competitors and can also facilitate their future growth exponentially. We have also analyzed two possible options which can be implemented and have assessed of which may be the most viable option for the company. We have also reached on a conclusion…show more content…
Please make sure to explain how you arrived at your conclusion. Ans. (a) At Break Even Point: Total revenue = Total cost i.e. p*x = v*x + F where, p = Sales Price per Anchor v = Variable Cost per Anchor F = Total fixed Cost x = Total Anchors to be manufactured for Break Even. Since, p*x = v*x + F => (p-v)*x = F => (p-v) = F/x i.e.(p-v) = Total fixed cost per Anchor Now Total fixed cost per anchor for Process A = (pA -vA) = (45-36) = $9 per Anchor Total fixed cost per anchor for Process B = (pB -vB) = (45-29.99) = $15.01 per Anchor Ans. (b) (p-v)*x = F => x = F/(p-v) Number of units to be manufactured at break even For Process A: xA = FA/(pA-vA) = 650,000/ (45-36) = 72,222.22 ≈ 72,222 units to be manufactured at break even. For Process B: xB = FB/(pB-vB) = 950,000/ (45-29.99) = 63,291.14 ≈ 63,291 units to be manufactured at break even. Ans. (c) Process B should be adopted for two reasons: (1) The break-even point for process B is 63291 units which is less than that of process A at 72,222 units, so process B is more cost effective. (2) Process B is
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