2121 Case Study
1. For each unit of the Waist Line Reduction Machine,
Target price = $100
Profit margin = 25% of sales
Target profit = $25
Target cost = 100-25 = $75
If TRIM produces WLRM at 7500 units, the target cost will be
=$75*7500
=$562500
If TRIM produces WLRM at 10000 units, the target cost will be
=$75*10000
=$750000
2. Summary of the unused capacity
Handling Material
2500 # of moves
Setting up equipment
2000 set up hours
Designing Processes and Products
4 types of products
Designing Packaging
4 types of products
Machining the Product
60000 machine hours
Labor
1500 labor hours
a) Make 7500 WLRMs
(*Please refer to the workings in table 1 of the appendix.)
If TRIM decides to produce 7500 units of WLRMs, they could be produced within the current capacities of all activities. Thus, no extra capacity is required.
However, as making WLRMs at the level of 7500 units will lead to a net loss of $14008, TRIM should not produce WLRMs at this level of outputs.
b) Make 10000 WLRMs
(*Please refer to the workings in table 2 of the appendix.)
If TRIM chooses to produce at 10000 units of WLRMs, only 5 activities including handling material, designing processes and products, designing packaging and machining the product could be produced within the existing capacity.
They need to purchase extra 500 set up hours for equipment and 500 labor hours.
Since making 10000 WLRMs will lead to a net loss of $7000, TRIM should not produce WLRMs at this level of outputs.
c) Make 20000 BBs
(*Please refer to the workings in table 3 of the appendix.)
If TRIM decides to produce 20,000 BBs, there will not be sufficient capacity for labor so she will need to purchase 2500 extra labor hours.
As making 20000 BBs will generate a net profit of $401000 and the profit margin will be 40.1% which is higher than the targeted one (i.e. 25%), TRIM could consider producing BBs at 20000 units.
d) Make 20000 BBs and 10000 WLRMs
(*Please refer to the workings
Target price = $100
Profit margin = 25% of sales
Target profit = $25
Target cost = 100-25 = $75
If TRIM produces WLRM at 7500 units, the target cost will be
=$75*7500
=$562500
If TRIM produces WLRM at 10000 units, the target cost will be
=$75*10000
=$750000
2. Summary of the unused capacity
Handling Material
2500 # of moves
Setting up equipment
2000 set up hours
Designing Processes and Products
4 types of products
Designing Packaging
4 types of products
Machining the Product
60000 machine hours
Labor
1500 labor hours
a) Make 7500 WLRMs
(*Please refer to the workings in table 1 of the appendix.)
If TRIM decides to produce 7500 units of WLRMs, they could be produced within the current capacities of all activities. Thus, no extra capacity is required.
However, as making WLRMs at the level of 7500 units will lead to a net loss of $14008, TRIM should not produce WLRMs at this level of outputs.
b) Make 10000 WLRMs
(*Please refer to the workings in table 2 of the appendix.)
If TRIM chooses to produce at 10000 units of WLRMs, only 5 activities including handling material, designing processes and products, designing packaging and machining the product could be produced within the existing capacity.
They need to purchase extra 500 set up hours for equipment and 500 labor hours.
Since making 10000 WLRMs will lead to a net loss of $7000, TRIM should not produce WLRMs at this level of outputs.
c) Make 20000 BBs
(*Please refer to the workings in table 3 of the appendix.)
If TRIM decides to produce 20,000 BBs, there will not be sufficient capacity for labor so she will need to purchase 2500 extra labor hours.
As making 20000 BBs will generate a net profit of $401000 and the profit margin will be 40.1% which is higher than the targeted one (i.e. 25%), TRIM could consider producing BBs at 20000 units.
d) Make 20000 BBs and 10000 WLRMs
(*Please refer to the workings