Hilton Manufacturing Company

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Hilton Manufacturing Company

By | December 2009
Page 1 of 2
Hilton Manufacturing Company Should Product 103 have been dropped? (3 ways to see) 1) Lost sales ($5,202) Cost savings DL $1,341 Compensation insurance 67 DM 946 Power 59 Supplies 68 2,501 Repairs 20 Lost CM: total impact of dropping ($2,701) 2) Loss eliminated Costs that remain Rent Property tax Property insurance Indirect labor Compensation ins. Light and heat Building service Selling expense General admin Depreciation Interest Other income Total impact 3) $404 $365 78 103 448 21 20 14 917 346 713 102 (10)

3,117 (2,703)

unit CM (see later) Total impact: lost CM = 5.3909 x 510,276 = $2,702

Which product is most profitable? 101 VC DL Compensation insurance Power DM Supplies Repairs Total Selling price CM/unit CM ratio .1164 2.3282 .0403 1.3766 .0941 .0319 3.9875 9.3084 5.3209 57% .1137 2.2740 .0929 1.7542 .1774 .0557 4.4709 9.6900 5.2191 53% .1337 2.6746 .1171 1.8862 .1363 .0396 4.9875 10.3784 5.3909 52% Products 102 103

(If the plant is near capacity of available direct labor hours) CM/capacity (LH) $2.285/h 2.295/h 2.016/h

Which is the most profitable product depends on the decision question and the corresponding criterion

2

Should price of 101 be dropped to $8.64? VC unit costs forecasted 1991 change DL 2.3282 Compensation insurance .1164 Power .0403 Materials 1.3766 +5% Supplies .0941 +5% Repairs .0319

unit costs 1992 2.3282 .1164 .0403 1.4454 .0988 .0319

Total 3.9875 4.0610 (cost increase 7% of heat and light is ignored because the increase is fixed regardless of the pricing decision) Price cash discount (1.08%) vc unit CM x units Total CM $9.41 0.1016 4.0610 5.2474 750,000 $3,935,550 $8.64 .0933 4.0610 4.4857 1,000,000 $4,485,700

What is the minimum quantity to sell at $8.64 to be not worse off than remaining at the $9.41? 3,935,550/4.4857 = 877,355 margin of safety 122,645 units

What is the minimum quantity to sell at $9.41 to be not worse off than reducing the price? 4,485,000/5,2474 = 854,842 need to sell 104,842 more...