Catawba

682 Words Feb 29th, 2012 3 Pages
CATAWBA INDUSTRIAL COMPANY 1. Is the company correct in its practice of not manufacturing standard model compressors on Sundays because of the accounting loss incurred on each unit?
As per the cost structure given in the case, Selling costs, Sales and Administration costs, Depreciation and other manufacturing overheads have been considered to be variable costs, i.e. per unit costs and hence have been accounted for in the calculation of profit and loss. As such, this methodology is resulting in a loss of $900 for every Sunday that the plant is operated. Therefore, if the present cost structure is used no production should be done on Sunday since it is clearly unprofitable.
However, on a closer analysis, a few irrelevant costs like
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Among these 17 pieces, 4 are manufactured on Saturday while the remaining 13 on the weekdays.
The profitability figures as derived from the data given in the case are as follows: | Light Weight Compressor | Standard compressor | Total Production | | Weekdays | Weekdays | Saturday | | | Per Unit | Total | Per Unit | Total | Per Unit | Total | | No of units | | 10 | | 13 | | 4 | 27 | Revenue/unit | 8,000 | 80,000 | 10,000 | 1,30,000 | 10,000 | 40,000 | 2,50,000 | Total Cost | 5,951 | 59,510 | 8,200 | 1,06,600 | 9,550 | 38,200 | 2,04,310 | Profit | 2,049 | 20,490 | 1,800 | 23,400 | 450 | 1,800 | 45,690 |

Weekly profits have increased from $37,800 to $45,690 when 10 units of light weight compressors are manufactured; clearly showing that it’s a financially better off move.

3. What weekly production plan for standard and light weight compressors would result in the highest financial return for Catawba?
The company has to decide amongst various available combinations of Standard Compressors and Light Weight Compressors so as to maximize profits.
The following table shows the various combinations- Price | Cost | Profit /unit | Number of LW compressors manufactured | profit (loss) | Remaining Labour Hours
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