Portal Corporation: Brief
Prof. Frole, Kimyotta Fernanders, September 7, 2014, Assignment Week 3 Portal Corporation Brief 2, MBA733--E1WW
Background
Portal Corporation has two plants that manufacture laser printers located in Ogden & Sandy Utah. Currently the company is expected to produce and sell120,000 laser printers in the upcoming year. If the company produces these at its current capacity usage, variable manufacturing cost will increase at both plants. In order to maximize on production and keep manufacturing cost to a minimum, Portal Corporation needs to determine the breakeven cost at both plants. This will assist Management to determine how to meet the expected demand while keeping the overtime cost to a minimum.
Analysis
The breakeven point assists to determine the output level to achieve the target operating income (Datar, Schoenebeck, 2014). The current breakeven point at Ogden is 20,000 units and 9,600 at Sandy in order to be profitable. In order to meet the expected demand without incurring extra cost, increasing the operating volume at Sandy will increase the units produced at a minimum cost to the company. By comparing the changes in contribution margin to the changes in the fixed cost we are able to better evaluate the decisions on the proper distribution for manufacturing (Datar, Schoenebeck, 2014). Since the cost for additional manufacturing at Sandy would increase by double the amount it would increase at Ogden, management is correct in increasing the production at Ogden.
Conclusion
In order for the company to maximize on production, producing 70,000 units at Ogden and 50,000 units at Sandy will give the company a difference of $220.00 versus $270.00 at producing 75,000 at Ogden and 45,000 at Sandy. The operating leverage here shows the effects that fixed cost have on the change in operating income. Understanding the breakeven at both facilities helps to determine how allocation can occur (Datar, Schoenebeck, 2014).
Reference
Datar & Schoenebeck (2014).
Background
Portal Corporation has two plants that manufacture laser printers located in Ogden & Sandy Utah. Currently the company is expected to produce and sell120,000 laser printers in the upcoming year. If the company produces these at its current capacity usage, variable manufacturing cost will increase at both plants. In order to maximize on production and keep manufacturing cost to a minimum, Portal Corporation needs to determine the breakeven cost at both plants. This will assist Management to determine how to meet the expected demand while keeping the overtime cost to a minimum.
Analysis
The breakeven point assists to determine the output level to achieve the target operating income (Datar, Schoenebeck, 2014). The current breakeven point at Ogden is 20,000 units and 9,600 at Sandy in order to be profitable. In order to meet the expected demand without incurring extra cost, increasing the operating volume at Sandy will increase the units produced at a minimum cost to the company. By comparing the changes in contribution margin to the changes in the fixed cost we are able to better evaluate the decisions on the proper distribution for manufacturing (Datar, Schoenebeck, 2014). Since the cost for additional manufacturing at Sandy would increase by double the amount it would increase at Ogden, management is correct in increasing the production at Ogden.
Conclusion
In order for the company to maximize on production, producing 70,000 units at Ogden and 50,000 units at Sandy will give the company a difference of $220.00 versus $270.00 at producing 75,000 at Ogden and 45,000 at Sandy. The operating leverage here shows the effects that fixed cost have on the change in operating income. Understanding the breakeven at both facilities helps to determine how allocation can occur (Datar, Schoenebeck, 2014).
Reference
Datar & Schoenebeck (2014).