The Tankmaster Manufacturing Company, a large manufacturer of domestic oil tanks, is located in Amersham, Buckinghamshire. Since it came into existence in 1970, the company has enjoyed steady growth in both sales and profits.
Davina Tankmaster, the founder’s daughter, joined the company in 2005 after graduating with a degree in Accounting and Finance from Manchester University. One of her first tasks was to revise the costing system, as there was a need for more accurate product cost information to support the company’s strategy of offering keen prices in a highly competitive market dominated by a few large firms.
Davina had faced considerable opposition to the changes she had suggested, with several managers being willing to accept the
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Davina asks the production manager about the rise in overhead costs, causing him to virtually explode: “How can I keep costs down when marketing ignore our standard specifications and insist on 23 different versions of every product? I need more specialist engineers to monitor the changes, and they don’t come cheap. Also there are completely new parts coming through from design with huge material costs; materials handling is a real headache. And the number of specials going through on small production runs continues to increase. I need many more set-ups per shift and that is skilled work, but you can’t pick up that sort of skilled labour easily, so overtime is through the roof.”
Davina talks to the marketing manager next: “We are facing fierce competition for our bread-and-butter, high-volume lines and we just can’t match the low prices in the market. However, we have successfully increased our sales of the more specialised tanks despite an increase in prices forced on us by production. So we are meeting our overall sales targets and we encourage this trend towards the higher margin specialist products, our profits will rise. I don’t see any problem here at present, but there will be if you don’t make production get control of the cost increases.”
Davina starts to pull the information together, and gets frustrated at 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.
Forecasting activity being carried on by the principals of Fantastic for their business of ceiling fans marketing and assembling that was rapidly growing. Basic purpose behind making the forecasts was the decision on assembling and importing ceiling fans. The idea was to find a low priced, “assemble it yourself fan” from Taiwan and Hong Kong. These ceiling fans were cost effective as they reduced cooling cost during summer and heating cost during winter.
Wilkerson’s competitors have cut prices on their pumps, in order to maintain market share, Wilkerson also cut the price of their pumps. This dropped Wilkerson’s GM by about 15%. At the same time, Wilkerson was able to increase the price of their flow controllers by 10% without a drop in demand.
Lastly, the company suggest to expand their current inventory through increasing production and capacity. With the increase in production rate the company can gain more consumers as a whole through supply and demand. Doing this would give the company an opportunity for more exposure and perhaps better brand recognition.
We adopted a strategy of offering the highest price achievable whilst maintaining 100% capacity utilisation irrespective of market share. In the context of the scenario, where growth in demand outstripped supply and with only twelve ‘rounds’, we felt market share was not fundamentally important. In respect of setting the pricing level, we calculated the price elasticity of demand to give us an insight into the
Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:
Hickory Hill is a well-established smoked foods company specializing in smoked turkeys and has been selling its products throughout the northwestern part of the continental United States since 1967. Initially owned and operated by a German immigrant family, the key to the company's success lay in a secret smoking process native to Rhineland, Germany. By 1998, the firm owned 250 retail outlets in addition to 400 franchise arrangements. Though the company sold a variety of turkey products, its competitive strength lay in one particular type of smoked turkeys: Tender Most (2010 sales: $11,475,250). The 2011 sales were forecasted to have a 12% growth over the 2010 sales level.
Industrial Equipment INC. sold and serviced a variety of industrial equipment and related products to hospitals, nursing homes, hotels, motels and various other organizations in the four Atlantic Canadian provinces of New Brunswick, Nova Scotia, PEI and Newfoundland/Labrador. In addition to distributing a broad line of specialized equipment IE provided design, specification and planning assistance to architects,
Victoria Heavy Equipment’s most recent organization has been lacking effective communication practices amongst all of its divisions. The company has been suffering from lack of clear goals in measurable terms, for its divisions. The idea of each division functioning as an independent unit, whether it being cost or profit center, is a remarkable beginning. However, clear goals and key measurable need to be set for each center, which in our case have been overlooked. As a result, many of these centers have over spent, resulting in over expenditures, something we can definitely not afford with anticipated slower market.
The profits have increased for the company with the custom line accounting for 60% of volume and 75% of dollar sales according to this case study. The standard line has seen a continued increase in sales as well. What comes with the increased profit due to the increased manufacturing is the need to put higher amounts of capital into storing the higher inventory. With the company being at capacity, the lead times may not be meeting consumer demands either. The expansion that is needed would initially cost Chad’s Creative Concepts greatly. Without some type of expansion (which would most likely require a new plant), soaring inventory costs will need to be attended to.
Andres was forced to import product from French division as he ran out of capacity several times due to new machines performing inadequately. This added an overhead expense of approximately 2147 (Additional maintenance costs + Transfer costs)
In the medical sales industry, most of the competitive advantage comes from the doctor preference. Because of the high cost and amount of time that it takes to learn how to use a different company’s medical equipment, most doctors use one company’s products for life. Stryker has always recognized the existence of brand loyalty and has made it a top priority to develop excellent relationships with its customers. Hospitals that use Stryker’s equipment are more likely to continue to buy from Stryker because of their diverse product offerings. The key factors that differentiate Stryker from its competitors are innovation, reliability, service and reputation. As of December 31, 2010, Stryker owned approximately 1,125 United
with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was
After analyzing the results from the previous quarter, it was determined that the prices set for each segment were not sufficient. Product sales priority were also not properly adjusted. With the R&D investments, sales priorities needed to be changed for the main focus to become the most profitable market segments. Prices were not competitive which in turned decreased revenue, market share, and profitability. To become more competitive we altered the prices in each market segment. The Workhorse product was the first to change, the price was lowered to $2500 in an attempt to increase sales; at this price Team 4 was still making a profit on this product, as well as making the price much more competitive. The Workhorse sales priority was also lowered to 3rd in Americas and 4th in APAC and EMEA. This product was not selling as well as we had hoped, and was no longer as profitable as it once was which led to this decision. Next, the Innovator product’s price was adjusted; this involved a price increase to $4100. This price was adjusted to include the new
Toyota Motor Manufacturing, U.S.A. (TMM) is deviating from the standard assembly line principle of jidoka in an attempt to avoid expenses incurred from stopping the production line for seat quality defects. This deviation has contributed to the inability to identify the root cause of the problem, which has led to decreased run ratios on the line and an excess of defective automobiles in the overflow lot for multiple days. If this problem isn’t fixed quickly, an increased amount of waste will continue to be incurred and customer value will be threatened.