Catawba industrial company Case Study Solution
Catawba Industrial Company is planning to launch a new compressor as it is currently earning its revenue from the standard components.Whereas if the new lightweight compressors are used then the company would have cost savings in labor hours.Currently, 100 labor hours are used and if the new light weight compressors are manufactured then these labor hours will reduce to 62.5 hours and this will lead to cost saving in the labor cost.The company has almost 1200 employees and has more than $200 million sales. The stakeholder in the company is the General Sales Manager, Marge McPhee and the other stakeholders are the customers who will be affected by the decision of the company directly.
Section 2: Problems and issues
The problems and issues to be considered include the decision to make the new lightweight compressor and the total loss being made by the existing standard compressor. The standard component is making a total loss of $450 per unit on Sunday whereas on the other days it is making profit.
The other issue is the new component’s total cost and the decision whether to make that component or not. If the cost calculated is accurate then this will lead to a better decision being made whereas a wrong decision could be made if the total cost per unit and the profit of the new compressor are calculated. Whether the $417000 should be included in the calculation of the total cost per unit or not and whether there must be any depreciation calculation included in the total cost per unit of the lightweight compressor.
The new machinery would lead to a new production run and a plan for new production needs to be made by the General Manager, Marge McPhee.
It is further likely that the competition faced by the company is high and the switching cost is low as the company has ahigh price elasticity of demand as a change of $500 price in the sale price reduces the quantity being sold in the market and hence the quantity demanded has become low.
Section 3: Analysis
The analysis of the case shows that the costing is done on the basis of the overheads being included in the cost per unit and it is more likely that the manufacturing overheads are the general overheads which are included in the cost per unit due to which the cost per unit of the lightweight compressor has increased. Furthermore, the depreciation is included in the cost per unit which should not be included as the decision is always calculated on the basis of incremental costs and incremental revenues as per the concept of marginal costing. (Bragg, 2010)
Catawba industrial company Harvard Case Solution & Analysis
The second problem is the production plan which should be changed according to the new working shifts and hours required and the new machine should have 100% utilization ratio so that efficiency can be increased by the new machine..........................
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