Catawba Industrial Company Essay

2721 Words Feb 21st, 2009 11 Pages
Problem
As the financial consultants of Catawba Industrial Company our aim is to determine the best course of action to pursue with respect to the introduction of the new proposed light weight compressor. This course of action must remain within the production capacity restrictions the company faces.

Alternatives
Status Quo:
The company will continue to produce the standard compressor to satisfy the requirements for the automatic paint system and the demand that currently exists for this product.
Introduce Light Weight Compressor: The company will introduce the new light weight compressor to replace the standard unit in the automatic paint system and to satisfy any demand that might exist through industrial distributors.
Mixed
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The sales expense is a fixed cash outflow instead of a consistent dollar amount per unit.
General & Administrative Similar to sales expenses, this has been expressed as an allocation. Administration will still be compensated the same amount whether or not the volume of units sold differs.
Capacity Analysis

Product Mix #1 Equation Capacity

Standard Compressor
(2400 hours)/(100 hour/unit)

=24 units/week
The total capacity for producing standard compressors during a one week period is 24 units.

Explanation: As per the information given, during a one week period, Catawba Industrial can generate a capacity of 24 units of the standard compressors.

Product Mix #2 Equation Capacity

Light Weight
(2000 hours)/(62.5 hour/unit)

=32 units/weekdays The total capacity for producing light weight compressors during a one week period is 32 units.

Explanation: Catawba Industrial could produce just the light weight compressors. It can be determined the capacity units based upon the maximum hours worked per week of 2000 hours, which would thus be divided into the number of hours per unit of 62.5.

Product Mix #3 Equation Capacity

1)10 Light Weight Compressors

2) Standard Compressors 10 units ×62.5 hours
= 625 hours

2400 hours-625 hours
=1775 hours

(1775 hours)/(100 hours)

=17.75 units
The total capacity for producing standard
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