Waltham Motors

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Waltham Motors Case Individual Analysis
Measurement I
Kofi Opoku
October 11, 2010
Professor Brett Hunkins

Company Background:
Waltham Motors Division is a wholly owned subsidiary of Marco Corporation. The company manufactures electric motors of a single design which are usually purchased by household appliance manufacturers. The company was later acquired in 2003 by Marco Corporation. Prior to the acquisition, it was a family business.

Problem: Sharon Michaels, who happened to be appointed as division controller for the company was concerned about the financial report of May, 2004, given to her by the plant accountant. The report indicated huge variance discrepancies between the budgeted profit ($91,200) and the actual outcome of the company’s performance, which was a loss of $7,200 for the month of May, 2004. Questions:

1. Using the budget data, how many motors would have to be sold for Waltham Motors Division to break even? To calculate the breakeven point, I took the budgeted contribution margin of $351,200, divided by the budgeted units expected to be produced, which was 18,000. This would give me the unit contribution margin. I then took the total fixed costs and divided it by the unit contribution margin. The calculation is as follows: 351,200/18,000= 19.51

This implies that 260,000/19,511= 13,326
This calculation tells us that Waltham Motors will have to sell 13,325 motors in order to break even. Based on the Harvard Business school breakeven analysis tool, I was able to realize that in order for Waltham Motors to make profit, they will have to produce more than 13,325 units. From a revenue perspective, they will have to generate sales of more than $639,672 in revenue. The line graph below illustrates how Waltham Motors breakeven analysis. Where the revenue meets total costs (fixed + variable) shows the point at which they will break even, based on the performance report information provided to us in the case.

2. Using the budget data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) was allocated to planned production? What was the actual per unit cost of production and shipping?

In order to get the total expected cost per unit, I added the total variable costs (512,800) to the total non-variable cost (260,000); and then I divided the sum by the budgeted unit production in order to know what was allocated to planned production. The calculations are as follows:

512,800+260,000= 772,800
This implies that 772,800/18000= $42.93
This calculation tells us that the expected cost if all manufacturing and shipping overhead was allocated to planned production would be $42.93. For the second part of the question, I used the same calculation for the expected cost, but this time replacing the figures the cost they actually incurred. So in this case, it will be: 432,000+261,200= 693,200

This implies that 693,200/14000= 49.51
This calculation tells us that the total actual cost per unit if all manufacturing and shipping overhead was allocated to planned production would be $49.51. In order to get a bigger picture to see if I could arrive at the same answer, I decided to calculate per unit cost of both variable and fixed costs for the expected and actual costs. The variable and fixed costs per unit for the expected column are as follows:

Variable Cost per UnitFixed Costs per Unit
Direct Material$6.00 Supervision$ 3.20
Direct Labor$16.00Rent$1.11
Indirect Labor$3.20Depreciation$3.33
Idle Time$0.80Other$0.58
Cheap Time$0.60Selling & Admin$6.22
Miscellaneous Supplies$0.29
Shipping Cost$1.60
Total Variable Costs$28.49 per unit Total Fixed Costs$14.44 Based on the per unit cost calculations for the expected budget, the total variable per unit costs was $28.49, and the...
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