Superior Manufacturing Company

4716 Words19 Pages

Analysis of the case 2
Q1) Do you agree with Walters decision to keep product 103? 3
Analysis of Profit and loss statement 4
Sensitivity analysis 6
Strategic scenarios 8
Q2) Should superior lower as of January 1, 2006 its prices of product 101? To what price? 10
Q3) why did Supreme improve profitability during the period of January 1 to June 30, 2005? 13
Analysis 14
Q4) why is it important that Superior has an effective cost system? 17
What is your overall appraisal of the company’s cost system and its use in report to management 18
List the strengths and weaknesses of the system and its related reports for the purpose management uses the system’s output 18
What recommendations, if any, would you make to waters
…show more content…
Q1.Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Water’s decision to keep product 103?

The analysis of all the probable scenarios are given below:-

Scenario 1
If management decides to stop product 103, this can be achieved by:
1. Stop product 103 and all business related to it.
2. Outsource production of product 103 and keep distribution of product 103.
3. Stop product 103 and the extra available production capacity is used for producing product 101 or 102.

Scenario 2
If management decides to continue product 103, this can be achieved by:
1. Keeping the same volume of production.
2. Increasing the volume of production.
3. Decreasing the volume of production.
4. Substitute 102 capacity with 103; ( if 103 production facility can’t exploit economies of scale )

Analysis of Profit and Loss statement of 31 Dec, 2004

It becomes quiet clear from the first glance of Profit and Loss statement (2004), that product 103 is not profitable and incurring heavy losses. P&L clearly shows a loss of 2.16$ per unit sold in product 103 (amounts a total of $2.209 million). See below for the cost category classification:-

Cost differentiation - Direct/Indirect (Product 103) in $ 000
Direct indirect
Direct Labour(v) 6879 Rent 1882
Materials(v) 4851 Property Taxes 401
Suppliers(v) 350 Property Insurance 534
Repairs(v) 104 Indirect Labour 2309
Compensation insurance(v) 344 Light
Open Document