Superior Manufacturing Company

1. Was Borg-Warner’s Industrial Products Group a good candidate for a leveraged buyout in 1987? Evaluate the price paid and the structure of the deal that closed in May 1987. Are you optimistic about BW/IP’s prospects?

Question 1: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the most improvement?

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.

1. According to the case, it shows that management of M determined that a loss would be “probable” and the estimate range would be $15 million to $20 million. However, they determined $17 million would be the “most likely” amount of loss.

The board of directors met to discuss the possibility of changing our pricing and making a couple changes to the policies. The board decided to make the following changes:

2. You are also concerned that the Government did not obtain the greatest possible discount on sales over 1,000 total units. As a buyer, what can you do?

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

The first thing that the production manager must consider is the optimal quantity of cases that can be produced. The marketing manager has indicated that if the economy is strong then Motorking will sell 100,000 cases. If the economy is moderate Motorking will sell 70,000 cases, and if the economy is weak, then

production and sales of Product A is 2,000 units and of Product B is 3,000 units. There are three activity cost

If product 103 is terminated, there will be a greater loss since Superior has to continue to pay fixed costs. Fixed costs include Rent, Property Tax, Property Insurance, Indirect Labor, Light & Heat, Building Service, Selling Expense, SGA, Depreciation, Interest and Other Income. Loss of

Essentially, with the current cost system, the managerial analysis is highly flawed due to a lack of crucial in-depth cost information, as indicated by:

The two plans, Sarnia 1 and Sarnia 2 are producing halobutyl and regular butyl, respectively. The newly regular butyl plant, Sarnia 2, is running at less than capacity. The plant should be able to produce 95,000 tonnes, but the actual production is only 65,000. This creates a lot of unabsorbed fixed costs and inefficiency.

Firstly, it is strategically beneficial for the company to continue to produce products A, C, and D. However, you should discontinue production of product B, as it is unprofitable and is losing the company money. Product B has been losing the company $2,307 per reel. If the company deems it is essential to keep producing product B in order to retain their customer base, we recommend changing the production schedule. For example, during times of lower demand, you can produce products such as B that do not make as much money, but you will still retain your customers’ business and satisfy their needs. During times of higher demand, by discontinuing the production of product B, the company will be able to produce the more profitable products such as A, C, and D.

Support: The inventory increase in 1997, YOY, was 58%. Additionally, the COGS to revenue ratio reduced from to 72% in 1997. This combination of increase in inventory and reduction in COGS as a percentage of revenue seems to indicate that the fixed costs may have been spread over a larger base through over production, thereby causing the COGS to reduce. This may be a cause for concern and could be a potential red flag.

Q.3 Why Superior Improved Profitability during the period January 1 to June 30, 2005? How useful was the data in Exhibit 4 for the purpose of this analysis?