Ace Automotive Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Ace Automotive Case Solution

Alternative -2: Laclede Gas Company needs 180,000 fitting for construction purposes.

Laclede is a gas company that gives utility services to a metropolitan area. It needs 18000 large fittings for construction in a metropolitan area to increase its infrastructure and services. It is a one-year project, but it diversifies the business of Ace Automotive Company. The cost of manufacturing 18000 units the cost is 27.46 per unit based on (1000 ton presses and four cavity dies for casting). The marketing cost is based on normal sales, general and administration costs, and they have estimated 4% of sales to be the marketing cost in this case. The profit margin is 11%. Laclede agrees to pay 31.57 per unit on this contract.

Pros

Laclede promise to purchase all 18,000 units of fitting pumps.
It is an opportunity for the company because it is the first order of Laclede.
It diversifies the customer base instead of focusing mainly on automotive parts the company produces fitting for a gas company, which increases the company’s profit and maximizes the risk of business.

Cons

This contract is a one-year short-term project.
No experience in producing the fitting.

Alternative -3: The Chrysler contract presenting a quote for HV6 Segment.

McCullough president of Ace automotive company gives an alternative solution of manufacturing high-value 6 water pumps based on 400/500-ton presses with 2-cavity dies instead of 4-cavity dies. However, the company has used 2 cavity dies of 400/500-tonne presses. In addition, the cost of 400/500-tonne presses under 2 cavity dies is larger than the cost of 800/1000 tons presses under 4 cavity dies. In long term under 2 cavity dies procedures incur a greater labor and overhead cost.

Pros

There isn’t any overtime costs in this method.
Capacity to achieve the target of 140,000 units of water pumps.

Cons

Labor and overhead costs increases.
The profit margin of the company is 8%, which reduces the income of the business.

Recommendation

Optimum Production plan

The company's board is examining several possibilities to select the agreement. Because the units of each contract use different presses, the management creates many situations to obtain the optimal estimates that will maximize profit while reducing costs. Before analyzing each option, the assigned overhead cost is determined for both capacities of 400/500 and 800/1000 tons presses and overtime situations of High-value 6. To estimate the overheads costs, standard labor hours of each press, the fixed cost pool, and updatestandard foundry hours are used.

Under the first option, Chrysler and HV6 have been evaluated, using 800/100-tonne presses. The standard required hours for each contract are determined by dividing the total number of units by the standard hours per unit. After determining the needed standard hours, these standard hours are subtracted from the available overtime hours for 800/1000 tons presses, getting additional hours required to meet the both contracts. As a result, the gap between available and necessary hours should be contracted out.

To determine the success of this option, the profitability of both contracts is determined by comparing each contract's per-unit profit to the estimated demand. Net income is calculated after deducting outsourcing costs. Casting equipment is projected to work for 80 hours per week and 50 weeks per year, resulting in a total of 36000 hours available per year. The available hours are 5940 when planned hours, maintenance, slack, and other scheduled slippage hours are excluded, and each press' capacity varies.

Similar estimations are performed in the 2nd and 3rd alternatives, based on particular standard hours and available hours. In the second instance, all three contract terms are taken, and the high-value 6 is used with 800/1000 tons presses. All three contracts are taken in the third scenario, but for HV6 400/500-tonne presses are used.

The number of hours available under the capacity of 400/500 and 800/1000 tons presses varies, the cost of outsourcing under each capacity is also different. The profitability of each scenario is determined by including the outsourcing cost. The option of both Chrysler and Laclede and HV6 under the capacity utilization of 400/500-tonne presses is expected to generate greater profitability among all, so casting HV6 units under 400/500-tonne presses in, along with the demand of Chrysler and Laclede, which seems to be a suitable option for the company..............................

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Ace Automotive Harvard Case Solution & Analysis