Merton Truck Company's Financial Performance and Product Mix
| MERTON TRUCK |
Memorandum
To: President
From:
Date:
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Re: Merton Truck Company
Introduction
In response to your report and request regarding Merton’s financial performance and product mix, I have met with your controller, sales manager and production manager, and have provided a solution that will improve the company in these two areas. Using a systematic approach, I was able to analyze the current machine hours, standard costs, and overhead budget. My findings have allowed me to determine the best monthly product mix that will maximize Merton’s total monthly contribution. Furthermore, I have addressed the decision regarding outsourcing, and have provided both the maximum rent your company should pay in addition to the maximum number of hours that should be rented. When determining the product mix, I took careful consideration of the machine hour constraints that your factory must account for. The following sections will provide further information in regards to my analytical technique, and how I was able to determine these figures. Current Situation
Merton’s third and fourth quarters of last year should not be deemed a failure, but rather an area where the company can improve. It is evident your company’s current product mix is not meeting the financial standards that the company expects. As your sales manager pointed out, Model 101 trucks currently cost $40,205 to produce and are selling at a price of $39,000, meaning the company is producing this model at a loss. Some other issues to point out are the current capacity levels. Although the company is profiting on each Model 102 sold, maxing out capacity for this model may not be the best solution, as suggested by the controller. An analysis of the provided budget will allow us to track where the company’s money is being spent, and will suggest certain areas where possible changes can be made. Evaluating the different scenarios will answer
Memorandum
To: President
From:
Date:
-------------------------------------------------
Re: Merton Truck Company
Introduction
In response to your report and request regarding Merton’s financial performance and product mix, I have met with your controller, sales manager and production manager, and have provided a solution that will improve the company in these two areas. Using a systematic approach, I was able to analyze the current machine hours, standard costs, and overhead budget. My findings have allowed me to determine the best monthly product mix that will maximize Merton’s total monthly contribution. Furthermore, I have addressed the decision regarding outsourcing, and have provided both the maximum rent your company should pay in addition to the maximum number of hours that should be rented. When determining the product mix, I took careful consideration of the machine hour constraints that your factory must account for. The following sections will provide further information in regards to my analytical technique, and how I was able to determine these figures. Current Situation
Merton’s third and fourth quarters of last year should not be deemed a failure, but rather an area where the company can improve. It is evident your company’s current product mix is not meeting the financial standards that the company expects. As your sales manager pointed out, Model 101 trucks currently cost $40,205 to produce and are selling at a price of $39,000, meaning the company is producing this model at a loss. Some other issues to point out are the current capacity levels. Although the company is profiting on each Model 102 sold, maxing out capacity for this model may not be the best solution, as suggested by the controller. An analysis of the provided budget will allow us to track where the company’s money is being spent, and will suggest certain areas where possible changes can be made. Evaluating the different scenarios will answer