Calculate profitability for the four products in Exhibit 4...

Calculate profitability for the four products in Exhibit 4 excluding the impact of attaching machines cost which is part of general manufacturing overhead. The calculations here require more thinking than crunching.

 

Transcribed Image Text:

EXHIBIT 4 Product Cost Information for Representative Products (5 per 1000 units) AVERAGE SELLING PRICE SS (S-Spring) PRODUCT COST Overhead Direct Labor (including set-up charge) Machines General Total Overhead TOTAL Price versus the major European Competitors Material Cost (including materials overhead) $11.20 $46.75 Ring Prong Tack $39.83 $17.80 $38.40 A little higher A little lower $10.09 $6.02 $14.18 $1.32 $.66 $1.43 $.21 2.06 1.80 2.29 .82 27.75 25.31 14.10 4.42 $29.81 $27.60 $5.24 $15.90 $42.33 $39.12 $11.47 $30.74 185 For cost analysis and decision-making purposes, it was assumed within ML that only material cost was volume dependent in the short run. EXHIBIT 5 CHOICE OF AN ATTACHING MACHINE DEPENDS ON THE ATTACHING APPLICATION AND IS ESSENTIALLY INDEPENDENT OF SNAP VOLUME PURCHASED. Example 1-A high volume application using manual machines. 33 160 The range-6% 551 L Sales through tributors 100% 20% 0% 60% 50% 0% 100% 65% 60% of Labor Cost Labor rate $5.00 per hour Labor time to cut and sew-1 hour Each garment has 2 snaps Excluding fastener attaching, labor cost per garment-$5.00 Attaching costs: . If use M1 (5/minute)-2/5 minutes-$.033/garment If use A3 (50/minute)-2/50 minute-$.003/garment Ml costs $200 once & no maintenance (say $20/year) A3 costs $1,500 and no maintenance Cost difference-$1,480/year It takes-49,000 garments to pay back the A3 cost increment 49,000 garments 49,000 labor hours! In this example, each worker should very probably have an M1 machine, even if the company made 500,000 garments and bought 1,000,000 snaps/year! Example 2-A low volume application using automatic machines The range-36 of Labor Cost Labor rate = $5/hour Labor time to cut & sew = 3 minutes (20/hour) Each garment has 6 snaps Excluding attaching, labor/garment-$.25 Attaching costs: If use M1 (5/minute)-6/5 minutes-$.10/garment If use A3 (50/minute)-6/50-010/gament It takes only-16,000 garments to pay back the $1480 A3 cost increment for this example 16,000 garments-96,000 snaps and only 800 labor hours In this example, each worker will probably have an A3 machine, even if snap volume was only 96,000 per year! EXHIBIT 4 Product Cost Information for Representative Products (5 per 1000 units) AVERAGE SELLING PRICE SS (S-Spring) PRODUCT COST Overhead Direct Labor (including set-up charge) Machines General Total Overhead TOTAL Price versus the major European Competitors Material Cost (including materials overhead) $11.20 $46.75 Ring Prong Tack $39.83 $17.80 $38.40 A little higher A little lower $10.09 $6.02 $14.18 $1.32 $.66 $1.43 $.21 2.06 1.80 2.29 .82 27.75 25.31 14.10 4.42 $29.81 $27.60 $5.24 $15.90 $42.33 $39.12 $11.47 $30.74 185 For cost analysis and decision-making purposes, it was assumed within ML that only material cost was volume dependent in the short run. EXHIBIT 5 CHOICE OF AN ATTACHING MACHINE DEPENDS ON THE ATTACHING APPLICATION AND IS ESSENTIALLY INDEPENDENT OF SNAP VOLUME PURCHASED. Example 1-A high volume application using manual machines. 33 160 The range-6% 551 L Sales through tributors 100% 20% 0% 60% 50% 0% 100% 65% 60% of Labor Cost Labor rate $5.00 per hour Labor time to cut and sew-1 hour Each garment has 2 snaps Excluding fastener attaching, labor cost per garment-$5.00 Attaching costs: . If use M1 (5/minute)-2/5 minutes-$.033/garment If use A3 (50/minute)-2/50 minute-$.003/garment Ml costs $200 once & no maintenance (say $20/year) A3 costs $1,500 and no maintenance Cost difference-$1,480/year It takes-49,000 garments to pay back the A3 cost increment 49,000 garments 49,000 labor hours! In this example, each worker should very probably have an M1 machine, even if the company made 500,000 garments and bought 1,000,000 snaps/year! Example 2-A low volume application using automatic machines The range-36 of Labor Cost Labor rate = $5/hour Labor time to cut & sew = 3 minutes (20/hour) Each garment has 6 snaps Excluding attaching, labor/garment-$.25 Attaching costs: If use M1 (5/minute)-6/5 minutes-$.10/garment If use A3 (50/minute)-6/50-010/gament It takes only-16,000 garments to pay back the $1480 A3 cost increment for this example 16,000 garments-96,000 snaps and only 800 labor hours In this example, each worker will probably have an A3 machine, even if snap volume was only 96,000 per year!