Eco/365 Week 3

The company started off producing 20,000 units of mountain bikes. We did not change the production quantity. Last year our forecast sales were 24,000 when we only sold 19,866; therefore we thought it would be best to leave production at 20,000 bikes. Having excess inventory, we concluded that 20,000 units should be enough considering our quality has not changed and our advertising will not increase the sales dramatically. Although we had the choice to produce as much as 30,000 units, we felt as though we did not have sufficient money to increase production. We were interested in allocating the money towards marketing as opposed to production. We realized that without awareness, no matter how many units we make, sales would be inefficient.

- The incremental cost in this case is all the cost elements in E1 or E2 except the labor cost and the transportation and storage cost. That is because the labor is not not a volume dependent element. Also, the transportation and storage is not part of the incremental cost because the company was operating its own fleet of truck and was using its own warehouses to storage the

Although the company did show an increased gross profit of $8,255,000 with $6,358,000 less Net Sales in 2013 versus 2012, that increase is due to the reduction in product Cost of Goods Sold by $14,613,000. Since increases in product price will negatively affect sales, one of management’s primary goals is to keep prices stable. This objective is achieved through implementation of cost cutting programs, investing in more efficient equipment, and automation of more steps in the production process.

Martinez Company’s relevant range of Production is 7,500 to 12,500 units. When it produces and sells 10,000 units, its unit costs are as follows:

One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.

14. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:

We decided to decrease the price of mountain bike production from $134 per bike to $108. The difference of $26 for 11,000 units results in a saving of almost $300,000. In the meanwhile, we also decided to dump our finish goods inventory, incurring a loss of $175,000. We decided to increase our capacity from 20,000 to 27,500 and efficiency from 1,000,000 to 2,000,000. We want to avoid increasing capacity significantly in order to avoid low efficiency. At the same time we want to keep our wastage at a minimum. We reduced our retail margin for the bike and sports store to 20% while reducing the discount stores to 27%. These new retail margins

2. If the department that produces Item 345 was a profit center and if you were the manager of that department, would it be to your financial advantage to lower the price?

(b) Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.

2. The productivity of making product decreased; however, the price of the product increased thus they are increasing profit. Thus,

a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?

If Darby Company drops the shipping limitations and allows any distribution center to supply to any customer zone for which they have shipping information, their total cost would be reduced to $600,942, which is a savings of $19,828 or 3.2%. By putting the above information into the objective function, the distribution plan without restrictions reduces the cost of shipping to $177,712 – a savings of $16,888. In addition, this new plan allows the company produce more of its meters at its more cost efficient San Bernardino plant – in fact, under this plan it produces at capacity, which is 20,000 units, meaning that its cost of manufacturing is $200,000. These units are then shipped to Las Vegas. The El Paso plant produces 14520 units for the Ft. Worth center and only 6740 for the Santa Fe center. The cost of manufacturing these units are $152460 and $70,770 respectively, making the cost at the El Paso plant $223,230. Adding all these costs together gives us the total cost as such: $177,712 + $200,000 + $223,230 = $600,942. This plan allows more than one center to supply to a specific zone and the solution shows that this is the case for the San Diego customer zone. The Santa Fe center supplies 620 units to them and the Las Vegas center supplies the other 3,840, satisfying their 4460 demanded units. In addition, this plan allows a

If United Metals decides to buy the components from Amalgamated Components, manufacturing costs will add up to 0.83 cents per piece. The annual output is 100,000 per year, manufacturing costs for each

With all these changes, the company will obtain more profit with the level production, $532,000 instead of $351,000,which represents an important increase.

Related to direct-labor-based system, the total product cost per unit is $82.72 and only $80.01 while using ABC system. The total product cost per unit reduces by $2.71. From this information, it could infer that Wilson could possibly reduce the price more than the competitor’s announced price reduction of $2.50 per unit, and then keep the competition in the market.