- 1. The recommended number of BodyPlus100 and BodyPlus200 machines to produce?
Sol: I recommend you sir to produce fifty one (51) numbers of BodyPlus100 and seventeen (17) numbers of BodyPlus200 machines so as to make the maximum profit in manufacturing of these BodyPlus100 and BodyPlus200 machines.
- The effect on profits of the requirement that the number of units of the BodyPlus 200 produced must be at least 25% of the total production?
Sol: The net profit that is obtained in manufacturing BodyPlus200 at least 25% of the total machines will be marginally less when compared to the profit that is obtained in manufacturing more BodyPlus100 machines i.e. more than 75% of total machines production.
As calculated, the total expenditure that is made in manufacturing BodyPlus100 (includes the raw costs and labor costs) is $1309 per machine
The total number of working hours in manufacturing BodyPlus100 (includes machining, welding, painting, finishing work and for assembling, testing and packaging) is 15hrs.
Now, the net profit that is made in manufacturing one BodyPlus100 machine after selling it to an authorized dealer for (70% of the retail price i.e. $2400) is ($1680 – $1309) $371.
Now the profit made per hour on manufacturing one BodyPlus100 machine is $24.73
Admittedly, referring to the calculations from attachment 1 from ‘Production strategy’ the net profit made per hour on manufacturing one BodyPlus200 machine is $20.83
- Where efforts should be expended in order to increase contribution to profits?
Sol: I sincerely advise you, sir, to reduce the total percentage of manufacturing the BodyPlus200 in the total production as the profit obtained for each BodyPlus100 is more than the BodyPlus200.
Also assigning lesser time for machining and welding is also resulting in the total number BodyPlus100 machines produced so as to obtain more profits and time has to be managed well so that assigning ten (10) more hours for machining and welding will result in more number of products that can be manufactured.
Instead of assigning 450 hours for finishing and painting, we can assign 440 hours for finishing and painting that can produce one more BodyPlus100 (taken that the total percentage of BodyPlus200 is just slightly less than the percentage recommended as 25% of the total production).
Case Problem2 Solution Plus:
- If Solutions Plus wins the bid, which production facility (Cincinnati or Oakland) should supply the cleaning fluid to the locations where the railroad locomotives are cleaned? How much should be shipped from each facility to each location?
|No. of gallons required||No of gallons supplied from|
Here we can see that the total numbers of gallons that are delivered from Cincinnati are more than 500,000 gallons. So we are short of 17,615 gallons of the locomotives cleaning agent that has to be delivered from Cincinnati.
To satisfy the requirement of the majority of the dealers in the remaining locations, and considering the profits, all the 17,615 gallons of the cleaning agent is reduced from the Pendleton deal.
- What is the break-even point for Solutions Plus? That is, how low can the company go on its bid without losing money?
Sol: The Break-Point is given by the point at which the company owns neither profit nor loss during the sale of the company products. Hence this is given as the zero profit and zero loss zone for the Solution Plus company. This Break Point can be calculated when there is no profit in the bid. If the price of oil is hiked and freight charges are also increased by the same amount, then the Break Point is calculated at $1,821,214.39
- If Solutions Plus wants to use its standard 15% markup, how much should it bid?
Sol: If Solution Plus wants to use its standard 15% markup, then it should place a bid for $1,821,214.39
- Freight costs are significantly affected by the price of oil. The contract on which Solutions Plus is bidding is for two years. Discuss how fluctuation in freight costs might affect the bid Solutions Plus submits.
Sol: Here, the net profit made for one year is $237,749.72 and if the bid is made for one year the total amount has to be $1,821,214.39 but given that the bid has to be made for two years, then the bid price would be $3,642,428.78
And the profit expected in two years (taken the oil prices are fixed) is $475,499.44
If the oil price is hiked by 15% then also profit is expected for the Solution Plus Company as there are few locations which are supplied with the cleaning agents without any shipping charges. So only a marginal amount of profit can be made in two years even after placing the bid.
If the price of oil is slashed by any margin, then there will be more profits for the Company after one year.