Superior Manufactoring
Superior Anufacturing
Question 1 Answer
Based off of the 2004 statement of profit and loss data, I do agree with Water’s decision in keeping product 103. The total sunk costs for the company could be more substantial in a shorter time than having years of low profits from the sales of product 103. Overall the company would lose $4,933,000 by eliminating product 103. Recovering the indirect costs of dropping the product line would also be unclear as well. An incremental analysis would be the best approach in determining whether keeping product 103 is beneficial or not.
Continue Drop Difference ***(Thousands $)***
Sales $ 26,670 0 -26,670
Less-Variable Expense
Compensation Insurance 458 0 458
Direct Labor 6,879 0 6,879
Materials 4,851 0 4,851
Supplies 350 0 350
Repairs 104 0 104
Power 302 0 302
Total Variable Expense 12,944 12,944
Contribution Margin 13,726 -13,726
Less-Fixed Expenses
Rent 1,882 1,882 0
Property Taxes 401 401 0
Property Insurance 534 534 0
Indirect Labor 2,309 0 2,309
Light & Heat 106 106 0
Building Services 75 75 0
Selling Exp. 4,701 0 4,701
General Administrative 1,783 0 1,783
Depreciation 3,658 3,658 0
Interest 539 539 539
Total Fixed Expenses 15,988 7,195 8,793
Net Operating Loss -2,262 -7,195 -4,933
Figures were taken from Exhibit 2 – Analysis of Profit and Loss by Products and Departments
Question 2 Answer
Superior Manufacturing could lower their prices from the $24.50 current selling price to $22.50 that Samra is proposing to change its prices to. This would allow Superior Manufacturing to stay competitive. Unfortunately, in doing so Superior Manufacturing would have to sell more of product 101 in order to achieve its breakeven point. The lower the selling price that is charged, the higher the volume of unit sales need to be to support the breakeven.
Variable Cost (VC) Fixed Cost (FC)
Compensation Insurance 0.39 Rent 0.88
Direct Labor 6.06 Property Taxes 0.29
Materials 3.59 Property Insurance 0.25
Supplies
Question 1 Answer
Based off of the 2004 statement of profit and loss data, I do agree with Water’s decision in keeping product 103. The total sunk costs for the company could be more substantial in a shorter time than having years of low profits from the sales of product 103. Overall the company would lose $4,933,000 by eliminating product 103. Recovering the indirect costs of dropping the product line would also be unclear as well. An incremental analysis would be the best approach in determining whether keeping product 103 is beneficial or not.
Continue Drop Difference ***(Thousands $)***
Sales $ 26,670 0 -26,670
Less-Variable Expense
Compensation Insurance 458 0 458
Direct Labor 6,879 0 6,879
Materials 4,851 0 4,851
Supplies 350 0 350
Repairs 104 0 104
Power 302 0 302
Total Variable Expense 12,944 12,944
Contribution Margin 13,726 -13,726
Less-Fixed Expenses
Rent 1,882 1,882 0
Property Taxes 401 401 0
Property Insurance 534 534 0
Indirect Labor 2,309 0 2,309
Light & Heat 106 106 0
Building Services 75 75 0
Selling Exp. 4,701 0 4,701
General Administrative 1,783 0 1,783
Depreciation 3,658 3,658 0
Interest 539 539 539
Total Fixed Expenses 15,988 7,195 8,793
Net Operating Loss -2,262 -7,195 -4,933
Figures were taken from Exhibit 2 – Analysis of Profit and Loss by Products and Departments
Question 2 Answer
Superior Manufacturing could lower their prices from the $24.50 current selling price to $22.50 that Samra is proposing to change its prices to. This would allow Superior Manufacturing to stay competitive. Unfortunately, in doing so Superior Manufacturing would have to sell more of product 101 in order to achieve its breakeven point. The lower the selling price that is charged, the higher the volume of unit sales need to be to support the breakeven.
Variable Cost (VC) Fixed Cost (FC)
Compensation Insurance 0.39 Rent 0.88
Direct Labor 6.06 Property Taxes 0.29
Materials 3.59 Property Insurance 0.25
Supplies