The Production Of Flashlights By 50 % ( $ 2 ) Essay

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The supplier of the company has increased the price of an important component (LED Bulb) in

the production of flashlights by 50% ($2). The company has already tried to look for solutions

such as changing the supplier or finding a replacement of the part but it has been unsuccessful

because it has an agreement with the supplier and would need the specific part to produce the

product. The challenge faced now by the company is to absorb the costs bared and find a solution

to earn profits from the available amount of products.

Effects of Cost Increase

The cost has increased by a significant amount and this would decrease the company’s raw material

purchases, sales volume, production and profit:

 The raw material purchases would be affected as with the same amount of money used in

purchasing the materials, less number of raw materials could be purchased, for example: if we

the material cost per unit is $4 and we purchase raw materials of $1,000,000, we can produce

250,000 units (1,000,000/4). Whereas if the material cost increases to $6, we would only be able

to produce 166,666 units (1,000,000/6) with the same amount of investment in raw materials.

 The production capacity would be affected as there would be less amount of raw materials

available with the same amount of investment as the current quarter.

 The sales volume would decrease because the production would be less as it is directly affected

by the raw materials purchased.

 The

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