Bridgewater Castings, Inc.

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Bridgewater Castings, Inc.

This haevily disguised case is set in the “nature “woodstoves business in 1986. It is not based on The Vermont Castings Company. The issue is product line strategy based on product line profitability.

In early 1986. Tim Morrissey was reviewing the disappointing 1985 results of oprations for his company ( see Exhibit 1). The business had been founded in 1938 by Tim’s grandfather as a modermization of an older iron forge company which Tim’s great- great –grandfather had built up over the years since 1902. The company entered the cast iron wood stove business when that market boomed in the early –1970s.By 1977 wood heating stoves was its only product line. The business oprated out of lesed factory and office
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Freight cost was also a problem when the shipping distance expended. Both stoves and ovens were bulky and weighed well over 300 pounds each. Thus,they were very expensive to ship.Bridgewater owned a fleet of trucks which had been expanded from 5 to 10 since the addition of wood ovens to the business. Even though the fleet represented about a $2 million investment. Shipping full – load orders in compnay owned trucks was not uneconomic. But more than hald of all shipments went out in partial loads using common carriers and contract haulers. Considering traffic management.dispathing fleet costs. freignt bills. packing cost and rental charges for public warehouse space. Total shipping costs were running about 17 % of sales in 1985. When Tim Morrissey saw the operating result for 1985 he walked into the office of his chief accountant Caroline Cooper and asked her how much confidence he should place in the split of operations between stoves and ovens. The loss on stoves was not really surprising to him given the tough market for that product, but he wan’t sure how Cooper had assigned costs and revenues. Cooper said she was pertty comfortable with the breakdowns. “ This really isn’t a complex manufacturing operation for either product as you well know. The sales breakdown is based on actual sales invoices. Its solid Manufacturing cost is pretty clean also since direct product cost

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