Brunswick Plastics Essay

IntroductionBrunswick Plastics, located in Canada, is an injection molding company. Brunswick Plastics produces 50 different products however, they ar not reaching contentedness. Production required ninefold labor arcminutes, and since they werent at capacity, they were finishing a little preceding(prenominal) breakeven. The Division Manager of Brunswick Plastics, Michael metalworker was informed of an opport social social building blocky for his company and must hit a finish on whether or not to back into this opport building blocky. Mr. smith was informed of a visit of producing 150,000 milk encases. He buns germ on a frolic for the project. However, Mr. Smith isnt confident in the information that he has, and requires answers to best count the make ups of producing the superfluous units. The cost that he knows are as follows Production Labor$0.14 commitment Labor 0.02Crate Materials 1.71Stamp Materials 0.04TOTAL$1.91 per unitStamping Machine $5,000 one-time c ostMr. Smith must make a critical pricing decision to have a competitive usefulness in the call up process. He has specific questions which answered, bequeath provide a confident grasp on the situation to enable him to make a decision on whether to place the bid and at what harm. If the bid is too high, it go forth most believably be rejected, and the company would lose the opportunity to reach capacity and make a higher profit. But, if the bid is too low it would cause a loss for the company. We will answer Mr. Smiths questions throughout this depicted object analysis. suspense 1 Based on your interpretation of Exhibit 3, what is your estimate of the change in PFMOH cost if the factory were to run one redundant batch of 150,000 milk crates? Based on the interpretation of Exhibit 3, the confinesar regression that has the most accurate relationship with Plant Fixed Manufacturing command processing overhead time (PFMOH) is Direct Labor Hours (DLH). Michael Smith calculated that 3,472 scheduled machine hours would be need, 2,083 runninghours. Using the equation, PFMOH=4321+(2.85*DLH), and knowing that an operator must be reconcile for each hour of scheduled machine hours (3,472), we can determine an step-up of $14,216.20. We must also factor in depreciation expense (straight line depreciation) of $500 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 dictated by adding the depend labor and direct materials per unit to the multivariate overhead. variant overhead is determined by multiplying the number of machine hours by the rule of thumb for variable overhead, which is stated in the study as $13 per machine hour of running time, and dividing the product by the number of units. ($13*2,083)/150,000=$0.18$1.91+.18=2.09Question 3 What doe s Exhibit 2 suggest would be a normal legal injury for milk crates for an comely job shop? What does this suggest about the $3.00 bell which seems to prevail at the time of the case?The case suggests the price for the crates for an average 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 much higher at $3.00, which increases the chance that the bid will be rejected. Question 4 What is the strategically 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$14,716.20/150,000=$0.10$3.00-$2.19=$0.81A t $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 count supporting 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 contract to alter his contribution margin and to meet capacity, we recommend him dictation 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 accepted at this price. If it is accepted, Brunswick would increase their profit by $106,500 annually. They would also come much closer to opposition capacity if they placed the bid.$2.90 Market set per unit-$2.19 Total Cost per unit= $0.71*150,000 units=$106,500 of profitQuesti on 6 What boilers suit strategic advice do you have for Mr. Smith? What isnt the business doing part, presumption the new specialties strategy and good business conditions? Support your answer with relevant cost analysis.Based on details within the case, Mr. Smith is manifestly bidding jobs too high and not allowing his plant to increase its plenty and obtain full capacity. We would advise Mr. Smith to get a better understanding of his costs in order to price his jobs more competitively. train 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, and so 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 successful bid would give Brunswick a competitive advantage in future orders. Therefore, if they won the other half of the milk crate orders, it would furt her cover 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.