Albatross Unit 3 Assignment

Topics: Costs, Variable cost, Management accounting Pages: 5 (1332 words) Published: November 3, 2011
This case mainly deals with the varying types of operational challenges that Albatross Anchor is currently facing. The pricing is not a major issue for the organization and it is able to sell its products at a consistent market rate; however it is unable to realise its full profit potential due to the presence of a lot of operational inefficiencies. It is evident that if the firm is able to overcome all of these challenges, it can make the same level of profits as that of their competitors and can also facilitate their future growth exponentially. We have also analyzed two possible options which can be implemented and have assessed of which may be the most viable option for the company. We have also reached on a conclusion regarding the benefits the company can reap by implementing the strategies in their operational management plan.

Question One
Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions): 1. Cost

a) Cost of Production:
Due to the presence of operational inefficiencies, Albatross Anchor is unable to reduce their costs as a result of which they have a lower profit margin. Therefore, they have a cost of production disadvantage as compared to their competitors.

b) Economies of Scale in material purchasing:
They can enjoy Economies of Scale when it comes to purchasing materials. Buying in bulk means they can get discounts from the suppliers on their purchase.

c) Cost of Raw Materials Sitting Idle in the Warehouse:
The increased amount of goods stored in the warehouse means that Albatross Anchor also needs to incur higher amounts of holding costs of storing the large amounts of inventory. Holding costs refers to the cost of carrying an inventory and may include costs such as, depreciation, deterioration, spoilage, taxes and insurance to name a few.

d) Cost of Finished Goods Sitting Idle in the Warehouse:
For the international orders the inventory of finished goods stays in the inventory along with the raw materials since the production is only done in small batches. This ultimately increases the holding cost for both the finished goods as well as the raw materials. 2. Speed of manufacturing process from order to finished product. Since the products are produced in limited quantities all the raw materials can be used more effectively. This also reduces the number of complexities during the manufacturing process. Currently their production is strictly dependent on the amount of demand for their products. 3. Flexibility in filling order(s)

The manufacturing process is very constrained and is not flexible enough to house the smooth production of two different types of products. Each individual type of anchor requires their exclusive set of manufacturing line and therefore the time required to switch from one mode to another manufacturing mode requires 36 hours; which is quite a long time. 4. Technology

The manufacturing process is deprived of new technology, making the process even more painstakingly slow. They are still using the traditional methods of making the anchors. 5. Capacity and facilities

The current plan of their facilities is clearly insufficient for managing their operations smoothly. The space for storing the finished goods and the raw materials is located towards the far south of the entire facility and it takes a considerable amount of time and effort to ship the finish goods from there. If the manufacturing area is moved closer to the shipping area; it will save considerable amount of time in shipping these finished products. The foundry is not a part of the manufacturing department which further impairs the smooth flow of work in the production process. If the foundry is moved towards the manufacturing process it may increase the firm’s ability to cater to international orders more quickly. For having a...
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