Brunswick Plastics Essay

IntroductionBrunswick Plastics, located in Canada, is an injection molding company. Brunswick Plastics produces 50 diametric products however, they are not r to each oneing capacity. turnout required multiple push back hours, and since they werent at capacity, they were finishing a little above breakeven. The naval division Manager of Brunswick Plastics, Michael smith was informed of an opportunity for his company and essential obligate a decision on whether or not to venture into this opportunity. Mr. metalworker was informed of a externalize of producing 150,000 take out crates. He can assign a crusade for the labour. However, Mr. Smith isnt confident in the discipline that he has, and necessarily answers to best estimate the be of producing the additional units. The appeals that he knows are as follows Production dig out$0.14Loading Labor 0.02Crate Materials 1.71Stamp Materials 0.04TOTAL$1.91 per unitStamping Machine $5,000 one-time costMr. Smith must make a criti cal pricing decision to halt a competitive advantage in the bid process. He has particular proposition questions which answered, volition provide a confident grasp on the circumstance to enable him to make a decision on whether to place the bid and at what price. If the bid is too high, it will most likely be rejected, and the company would lose the opportunity to reach capacity and make a higher(prenominal) profit. But, if the bid is too low it would cause a handout for the company. We will answer Mr. Smiths questions throughout this case analysis. interrogative 1 Based on your interpretation of demonstrate 3, what is your estimate of the salmagundi in PFMOH cost if the factory were to run one extra mussiness of 150,000 milk crates? Based on the interpretation of Exhibit 3, the linear regression toward the mean that has the most accurate relationship with Plant Fixed Manufacturing command processing overhead time (PFMOH) is unmediated Labor Hours (DLH). Michael Smith calc ulated that 3,472 scheduled machine hours would be need, 2,083 streakhours. Using the equation, PFMOH=4321+(2.85*DLH), and kno deliver the goodsg that an operator must be present for each hour of scheduled machine hours (3,472), we can determine an increase of $14,216.20. We must also factor in depreciation expense (straight line depreciation) of $ergocalciferol annually ($5,000/10years). Yielding a change of $14,716.20. 4,321+(2.85*3,472)=$14,216.20$14,216.20+$500=$14,716.20Question 2 What is your estimate of the incremental cost per unit for one batch of 150,000 milk crates?The incremental cost per unit is $2.09 and is determined by adding the direct dig out and direct materials per unit to the variable overhead. Variable overhead is determined by multiplying the number of machine hours by the rule of thumb for variable overhead, which is utter in the case as $13 per machine hour of running game time, and dividing the product by the number of units. ($13*2,083)/150,000=$0.18$1. 91+.18=2.09Question 3 What does Exhibit 2 suggest would be a normal price for milk crates for an clean transmission line shop? What does this suggest about the $3.00 price which seems to brave at the time of the case?The case suggests the price for the crates for an bonny job shop is150,000*$3.00=$450,000*57%=$256,500Therefore, the direct materials and direct labor is $256,500, $1.71 per unit for the average job shop. At $1.71 per unit, Brunswicks bid price will be lots higher at $3.00, which increases the chance that the bid will be rejected. Question 4 What is the strategicalally relevant cost per unit for milk crates? (for purposes of deciding whether or not the $3.00 market price is profitable, on an ongoing basis)At $3.00 market price, producing the 150,000 crates would be profitable for Brunswick, because the profit per unit is $0.81.Production Labor$0.14Loading Labor 0.02Crate Materials 1.71Stamp Materials 0.04Variable Overhead 0.18PFMOH 0.10TOTAL COST$2.19 per unit$14,7 16.20/150,000=$0.10$3.00-$2.19=$0.81At $0.81 a unit for 150,000 units, Brunswicks annual profit would be $121,500.$0.81*150,000=$121,500Question 5 What is your advice to Mr. Smith regarding the milk crate opportunity? Be specific and show the calculation reenforcement your advice.Assuming the original fixed costs will not be changed, we would recommend that Mr. Smith place the bid for the project. A price of $3.00 is the average current market price however, considering Mr. Smiths need for the nip to alter his contribution margin and to meet capacity, we recommend him statement at $2.90. His opportunity cost of not getting the bid is greater than the $0.10 he will lose if he made a bid at $2.90.The chances are fair for Mr. Smiths bid to be genuine at this price. If it is accepted, Brunswick would increase their profit by $106,500 annually. They would also come much closer to meeting capacity if they placed the bid.$2.90 Market Price per unit-$2.19 add together Cost per unit= $0 .71*150,000 units=$106,500 of profitQuestion 6 What overall strategic advice do you have for Mr. Smith? What isnt the business doing ruin, given the revolutionary specialties strategy and good business conditions? Support your answer with relevant cost analysis.Based on details within the case, Mr. Smith is obviously bidding jobs too high and not allowing his plant to increase its volume and hold in fullcapacity. We would advise Mr. Smith to get a better sagacity of his costs in order to price his jobs more competitively. Take this project for example, if the incremental cost of this milk crate project is $2.09 and he is certain he can win the bid at $2.90, then that $0.81 of revenue can contribute to 55% of the SG&A costs for the year, from a project that is only 25% of Brunswick Plastics annual sales revenue. Additionally, the case states that a palmy bid would give Brunswick a competitive advantage in incoming orders. Therefore, if they won the other half of the milk crat e orders, it would further over-correct their fixed overhead and not hinder the capacity requirements of the other products Brunswick produces. $0.81*150,000=$121,500/$220,000=.55 or 55%ConclusionConsidering the calculations we have made, we recommend that Michael Smith place a bid on behalf of Brunswick Plastics for the 150,000 milk crate project at $2.90. It will be wise for Mr. Smith to come in at the lowest market price to dramatically increase the chances of his bid being accepted. Brunswick needs to win this bid so that they may be able to better their contribution margin and come closer to meeting capacity. A win will also increase profit, so they are much higher above breakeven. This could lead to further business with the Dairy Counsel as well.