Monroe Clock Company Case
Submitted to: Peter Roth
Submitted by: Jessica Bodnar
September 30th, 2014
Monroe Clock Company has been making decorative electric clocks and later switched to making electric timing mechanisms for producers of timed electrical appliances. Monroe is interested in making a new timer, but they have to decide if the costs will be reasonable enough to deal with and still make profit. Monroe tried calculating its costs for the new timer. Unfortunately, they come up with high production costs, which could lead to consumers not willing to buy the item. The company has to decide how costs will be allocated and what price to charge consumers. This decision has to be done carefully or Monroe could end up making no profit.
1. What volume would have to be sold at the $14.70 factory price in order for Monroe to be as well off as it would be if it sold 50,000 units at $8.00?
8$ factory price retail price = 16$
16$ X 50,000 units = 800,000$ revenue
Revenue – Cost = Profit Profit = 220,000$
800,000 – (11.60 X 50,000) = 220,000$
14.70$ factory price retail price = 29.40$
29.40$ X x = 29.40x revenue
Revenue – Cost = Profit Profit = 17.80$x
29.40x – 11.60x (same costs as before) = 17.80x
Profit for 50,000 units @ 8$ Profit for x units @ 14.70$
17.80x 220,000 x 12,359.55 units
In order for Monroe to be as well off as it would be if it sold 50,000 units at 8.00$, they would have to sell at least 12,360 units at a factory price of 14.70$.
2. Some factor of direct labour costs is commonly utilized to represent the appropriate amount of factory overhead in a manufacturing operation. Comment on the validity of Frank’s calculation of 82% of direct labour as a reasonable approximation for the variable overhead component, compared to the 300% utilized by Monroe to date.
Monroe has always had that their variable overhead component equal to 300% of direct