Superior Manufacturing Company

In: Business and Management

Submitted By dazz
Words 4716
Pages 19
CONTENTS

Analysis of the case 2
Q1) Do you agree with Walters decision to keep product 103? 3
Analysis of Profit and loss statement 4
Sensitivity analysis 6
Strategic scenarios 8
Q2) Should superior lower as of January 1, 2006 its prices of product 101? To what price? 10
Q3) why did Supreme improve profitability during the period of January 1 to June 30, 2005? 13
Analysis 14
Q4) why is it important that Superior has an effective cost system? 17
What is your overall appraisal of the company’s cost system and its use in report to management 18
List the strengths and weaknesses of the system and its related reports for the purpose management uses the system’s output 18
What recommendations, if any, would you make to waters regarding the company’s cost accounting system and its related reports? 19 Initial Analysis of Superior Manufacturing Company Case :-

1) After death of Richard Harvey (2004), founder and president of Superior Manufacturing Company (SMC), Paul Harvey took over. Paul Harvey had only 4 years of experience. Soon followed serious management problems because of some bad decisions made by Paul Harvey. The income statement of 2004 reflected net loss of $0.68million in a good business year. To solve this problem Herbert Waters was brought over as General Manager of SMC.
2) SMC manufactured 3 different products namely 101, 102, 103 and was among the top 8 companies in the industry. Samra Company was market leader and announced price annually and other follow. Due to no product differentiation price cut was not an option. The June 2004 market share of SMC product wise is given below;
Products 101 102 103
Market share 12% 8% 10%
Price per 100lbs 24.5 25.8 27.5

3) SMC had a dedicated factory concept, where each factory produces only one product. Each product factory was fully horizontally integrated. SMC all plants operated below…...

Similar Documents

Browning Manufacturing Company Case

...136 - $ 172,200 $ 811,000 $ 1,129,200 352,368 - + $ $ 2,112,400 $ 1,901,952 $ Materials + $ $ $ 110,520 $ 825,000 935,520 $ 1,512,000 (210,448) - - + - + - - + - - + - - + 811,000 811,000 $ 124,520 Direct Manufacturing Labor + $ - 492,000 Factory Overhead Indirect Manufacturing Labor + $ 198,000 Power, heat & light + $ 135,600 Social Security Taxes + $ 49,200 Prepaid Taxes & Insurance, factory + $ $ - 66,720 $ 78,000 52,800 $ 144,720 $ Supplies 52,800 $ + $ $ - 17,280 $ 66,000 91,920 61,200 $ 83,280 $ Plant & Equipment + $ 2,678,400 $ $ 144,000 $ 61,200 $ 22,080 907,200 140,400 $ 2,822,400 $ 1,047,600 $ 1,774,800 $ 288,360 $ 552,840 $ 58,000 $ 862,136 $ 58,000 Browning Manufacturing Company Statement of Cost of Goods Sold (Schedule 1) For the Year ended December 31, 1998 Finished goods inventory 1/1/98 Work in process inventory 1/1/98 Materials used Plus: Factory expenses Direct Manufacturing Labor Factory overhead Indirect manufacturing labor Power, heat and light Depreciation of plant Social Security Taxes Taxes and insurance, factory Supplies Less: Work in process inventory 12/31/98 Cost of goods manufactured (completed) Less: Finished goods inventory 12/31/98 Cost of goods sold COST OF SALES AND......

Words: 1571 - Pages: 7

Superior Manufacturing Company Case

...Description: The Superior Manufacturing Company received a net loss income statement for a good business year (2004). SMC has only 3 products and lots of competitors with similar products. So, price cutting always need a reduction by all the competitors in this industry. The manufacturing strategy of SMC is based on the ‘dedicated factory’, which means each product has its own productive factory. And SMC has a simple cost system. This cost system has 2 categories of costs. First one refers to the costs can be tied directly to the manufacture of specific products. Second one refers to the indirect costs and other costs. Problem and issue: SMC uses a new standard cost system in 2005 which is used to value inventories, prepare budgets, and analyze performance. The manager thinks the product 103 should be dropped for its high cost which could not be cut down, and the product 102 has an increasing demand. Also, the managers want to make a price reduction. However, they find that the costs are too high to support the price reduction. Does the cost system of SMC work effectively? Firstly, we calculate the loss of drop of product 103. We use the data of 2004. If we drop 103, the operating loss would be 4933. Secondly, we calculate the reduction price of product 101. If price of product 101 = 24.5 Profit = 750000*[24.5*(1-1.08%)-10.48]-12.36*996859 = -2004450 If price of product 101 = 22.5 Profit = 1000000*[22.5*(1-1.08%)-10.48]-12.36*996859 = -544000 We can see when the...

Words: 331 - Pages: 2

Blackheath Manufacturing Company

...SUMMARY Blackheath Manufacturing Company produces a single product called Great Heath. The company recently employed a new cost accountant, Lee High, who aims to make another cost analysis over a period of three production weeks. He needed to determine the variable, semi-variable and fixed costs connected with the Great Heath production. Once it been categorized, he determined the cost per unit to break-even. The case shows Lee High was considering variable and fixed costs in determining the cost of goods sold per unit. He able to develop decision rules for the company’s owner, Charlton Blackheath, for the management decision-making. Based on Lee High’s information, Mr. Blackheath stated that an order could not be less than $7.00 per unit and additional sales decision rules for sales agent with commission and direct sales has no commission. The case then shows a series of sales description that were accepted or declined followed on these decision rules. However, a young file clerk decided to take a special order which is under-bid at $5.50 for 100 units of Great Heath based on her own assumption that this would be profitable for that volume. A later sales cost report was developed by Lee High showing cost per unit based on his predetermined costs analysis and profit per unit. Data showed the special order contribute a subsequent loss because of too low sales price per unit. Therefore, Mr. Blackheath fired the clerk for her error and mistake and set a new commission plan......

Words: 1192 - Pages: 5

Superior Manufacturing Company

...In Class Quiz October 8, 2013 Question: What factor or factors explain real wage convergence between the old world and the new during the period roughly 1870-1914? Did everyone benefit equally from the process? Answer: Before talking about convergence, it useful to say something about the level of real wages in the old world and in the new. In the old world, wages were relatively low because there was an abundance of labour while in the new world there was a scarcity of labour so that real wages there were relatively high. The question then: what forces were operating during this period to push up the real wages in the old world and/or down in the new world (and to move land rents in the opposite direction)? As many of you said, there were essentially three: 1. Migration, the movement of young, able-bodied, unskilled, mostly male workers from the old world to the new, pushed up the real wage in the old world as the labour force shrank and caused it to decline in the new world as the labour force increased. O’Rourke and Williamson maintain that migration explains most of the convergence during this period – in fact, it over-explains it. 2. The second was commodity market integration, thanks to technological advances in transportation – steam ships, railroads, refrigeration – that substantially reduced the cost of moving goods between the old world and the new and increased the variety and type of goods that could be moved. As a result, natural resources and......

Words: 482 - Pages: 2

Superior Manufacturing Company

...DI MILANO Master of Science in Management, Economics and Industrial Engineering [pic] Management Control Systems Prof. Paolo Maccarrone Second Assignment: Superior Manufacturing Company Analysis Group Ferrario Andrea 709407 Rognoni Susanna 720851 Taiana Marco 672497 Trifonov Angel 720619 A.Y. 2007/2008 Contents Q1.Do you agree with Water’s decision to keep product 103? 3 Analysis of the P&L statement of 31 December 2004 3 Sensitivity analysis 5 Strategic scenarios 9 Q2. Should Superior lower as of January 1, 2006 its price of product 101? To what price? 11 Q3. Why did Superior improve profitability during the period January 1 to June 30, 2005? How useful was the data in exhibit 4 for the purpose of this analysis? 14 Revenues 15 Costs 15 Q4. Why is it important that Superior has an effective cost system? What is your overall appraisal of the company’s cost system … 19 Why is it important that Superior has an effective cost system? 19 What is your overall appraisal of the company’s cost system and its use in report to management? 19 List the strengths and weaknesses of the......

Words: 7176 - Pages: 29

Superior Manufacturing

...--------- + ---------- +.... + ----------  (1 + R) (1 + R)^2 (1 + R)^8  Where R is the required return this is a study guide, not a cheat sheet.  Net Present Value:  NPV = PV - TI where TI = Total Initial Investment  Using a calculator we find that:  PV = $2,229,365.07  NPV = PV - TI = $2,229,365.07 - $1,200,000 = $1,029,365.07  ----------------------------------------------------------  3. Based on your answer for Q2, do you think the project should be accepted? This is a study guide, not a cheat sheet. Why? Assume Superior Manufacturing has a policy of not accepting projects with life of over 3 years.  Definition of Payback Criterion:  -Accept a project if its payback period is less than maximum acceptable payback period.  -Reject a project if its payback period is longer than maximum acceptable payback period.  The payback period is less than the 3 years, then the project fits the limit policy of Superior Manufacturing, then the project is acceptable by this criterion. This is a study guide, not a cheat sheet.  The NPV is positive and very atractive. The NPV criterion has considerable merits:  - It takes in to account the time value of money  - It considers the cash flow stream in its project life  The NPV Decision Rule says:  -Accept a project if NPV >= 0.  So by this criterion the project is also acceptable.  -----------------------------------------------------------  4. If the project required additional investment in land......

Words: 8914 - Pages: 36

Superior Manufacturing

...another version for another 2 weeks. Consequently, you can use CB for 4 weeks. Although your operating system is 64-bit Windows Operating System, most likely you need CB for 32-bit Microsoft Office because the Office installation is by default the 32-bit version of Office. Only companies that process large files require the 64-bit version of Office. *** As I informed you earlier, you can put more than 1 linear programming (LP) problem in one Excel file. However, you must create 1 Excel file for each CB problem. Furthermore, you can only open 1 Excel CB file at a time. If not, CB creates many graphs from all files that you open. **** Page 1 of 6 You can also use Monte Carlo simulation and risk analysis software other than Oracle CB from the following link http://en.wikipedia.org/wiki/Comparison_of_risk_analysis_Microsoft_Excel_add-ins Some of the software listed on the link above have no time limit. Furthermore, the closest replacement for Oracle CB is @Risk from Palisade Corporation http://www.palisade.com/risk/ Two problems: Problem 1: Chapter 13 - Computer Simulation with Oracle Crystal Ball for Business Planning. This is an easy problem. Work on this problem first. Taylor Jovi is the CEO of a company that has 5 divisions. She is modelling how much sales will be generated by each division during 2014. Her estimates are summarized in the following table: Divisions Book publishing Printing Local newspaper Magazines Children books 2013 Sales $5,432,231......

Words: 2066 - Pages: 9

Superior Manufacturing

...Introduction Superior Manufacturing Company is a company that had a loss of $688,000 in 2004. Manufacturing products 101, 102, and 103, cost analysis shows that products 102, and 103 have been unprofitable. SMC is also a company that has many competitors with products that are very similar so raising prices would cause customers to search for alternatives. The dominant competitor, Samra Company has been the cost regulator in the market by setting prices to be matched by competition. The manufacturing process uses three horizontally integrated dedicated factories that do not typically operate at capacity. Superior Manufacturing Company also uses a standard value costing method that is based on past performance. Decision to keep Product 103 Continuing production vs. Stopping production assumptions * Continue to pay fixed costs, not sell machinery immediately, and cut power to the building * Immediately reduce all direct labour costs, and reduce indirect labour costs to 5% for administration involving the property Table 1 (In thousands $) | Continue Production | Stop Production | Rent | $ 1,882 | $ 1,882 | Property Taxes | $ 401 | $ 401 | Property Insurance | $ 534 | $ 534 | Compensation Insurance | $ 458 | $ 5.77 | Direct Labour | $ 6,879 | | Indirect Labour | $ 2,309 | $ 115.45 | Power | $ 302 | | Light and Heat | $ 106 | | Building Service | $ 75 | | Materials | $ 4,851 | | Supplies | $ 350 | | Repairs | $ 104 | | Total | $......

Words: 1313 - Pages: 6

Superior Manufacturing Co.

...105-S16 REV: 12 AGOSTO, 2004 JAMES W. CULLITON DAVID F. HAWKINS JACON COHEN Superior Manufacturing Company En febrero de 2005, Herbert Waters fue nombrado director general por Paul Harvey, presidente de Superior Manufacturing Company. Waters, de 56 años de edad, poseía una amplia experiencia en la fabricación de productos similares a los de Superior. El nombramiento de Waters era consecuencia del problema planteado por la muerte de Richard Harvey, fundador y presidente de Superior hasta su fallecimiento al comienzo de 2004. Paul Harvey, de 34 años de edad, tenía solamente cuatro años de experiencia de trabajo en la compañía. Su padre proyectaba entrenarle durante un período de diez años, pero su prematura muerte le había impedido realizarlo. El joven Harvey se convirtió en presidente a la muerte de su padre, y había ejercido pleno control en la compañía hasta el momento en que Waters entró a formar parte de ella. Nueva dirección Paul Harvey sabía que a lo largo de 2004 había cometido varios errores y se daba cuenta de que había decaído la moral de la organización, al parecer debido a la falta de confianza en él. Cuando dispuso de la cuenta de pérdidas y ganancias de 2004 (véase Anexo 1), la pérdida de casi 688.000 dólares sufrida en un año de actividad económica general favorable, le convenció de que necesitaba ayuda. Consiguió captar a Waters, que estaba trabajando en una empresa competidora, ofreciéndole una participación de capital además del sueldo, sabiendo......

Words: 3020 - Pages: 13

Manufacturing Companies

...Collaboration in Supply Chains – A Survey of Swedish Manufacturing Companies Erik Sandberg Logistics Management Department of Management and Economics Linköpings universitet, SE-581 83 Linköping © Erik Sandberg, 2005 LiU-Tek-Lic-2005:35, Thesis No. 1180 ISBN: 91-85299-80-4 ISSN: 0280-7971 ISSN: 1402-0793 Printed by: UniTryck, Linköping Distributed by: Linköpings universitet Department of Management and Economics SE-581 83 Linköping, Sweden Tel: +46 13 281000, fax: +46 13 281873 Abstract The purpose of this thesis is to describe logistics collaboration in supply chains. During the past two decades, a new trend towards integration and collaboration in supply chains has been recognised among researchers as well as among business practitioners. This philosophy is called supply chain management and has received enormous attention in logistics research. Collaboration based on supply chain management is expected to reduce total cost and improve service towards the supply chain’s end customers at the same time. The argumentation in existing literature is however seldom underpinned by more rigorous empirical material and becomes therefore conceptual and superficial. Furthermore, it is incongruous about what actually is done when companies collaborate and what more specific effects are achieved. Therefore more research, especially survey based, is needed in order to verify existing literature. In this thesis the perspective of a focal company is taken in order to......

Words: 54358 - Pages: 218

Superior Manufacturing Company

...Superior  Manufacturing  Company     Description   Superior   manufacturing   company   produces   three   kinds   of   industrial   products   (101,102   and   103)   in   its   own   dedicated   factories.   It   uses   a   job   costing   system   helping  to  evaluate  and  arrange  the  whole  process  of  production,  which  is  later   replaced   by   a   standard   cost   system   in   2005.   In   the   market   of   similar   products,   Superior   faces   seven   competitors,   one   of   which   is   the   dominant   company   Samra,   a   price-­‐maker   to   some   extent.   As   shown   in   the   figure,   Superior   suffered   a   loss   during   2004.   What   is   worse,   a   weakened   industry   and   some   other   problems   like   price  reduction  are  coming  in  the  following  years.     Problems  and  issues   In   terms   of   management   changes   and   other   reasons,   Superior   suffered   a   big   loss   even   during   an   optimistic   business   year.   It   is   obvious   situation   didn’t   change   better  in  the  next  year. ......

Words: 469 - Pages: 2

Milton Manufacturing Company

...Milton Manufacturing Company Milton Manufacturing Company produces a variety of textiles for distribution to wholesale manufacturers of clothing products. The company’s primary operations are located in Long Island City, New York, with branch factories and warehouses in several surrounding cities. Milton Manufacturing is a closely-held company. Irv Milton is the president of the company. He started the business in 1999 and it grew in revenue from $500,000 to $5.0 million in ten years. However, the revenues declined to $4.5 million in 2010. Net cash flows from all activities also were declining. The company was concerned because it planned to borrow $20 million from the credit markets in the fourth quarter of 2011. Irv Milton met with Ann Plotkin, the chief accounting officer (CAO), on January 15, 2011, to discuss a proposal by Plotkin to control cash outflows. She was not overly concerned about the recent decline in net cash flows from operating activities because these amounts were expected to increase in 2011, as a result of projected higher levels of revenue and cash collections. Plotkin knew that if overall capital expenditures continued to increase at the rate of 26 percent per year, Milton Manufacturing probably would not be able to borrow the $20 million. Therefore, she suggested establishing a new policy to be instituted on a temporary basis. Each plant’s capital expenditures for 2011 would be limited to the level of capital expenditures in 2009. Irv Milton......

Words: 1484 - Pages: 6

Superior Manufacturing Company

... Master of Science in Management, Economics and Industrial Engineering [pic] Management Control Systems Prof. Paolo Maccarrone Second Assignment: Analysis Group Ferrario Andrea Rognoni Susanna Taiana Marco Trifonov Angel A.Y. 2007/2008 Q1.Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Water’s decision to keep product 103? In order to support an opinion on the side we decided to analyze all the probable scenarios. If the company management decided that it is better to stop the production of product 103, they could do this in one of the following manners: 1. Stop production and any business related to product 103. 2. Stop production but outsource it to another company and continue the distribution. 3. Stop production and use the available production capacity in order to produce product 101 or 102. If the company management decided that it is better to continue the production of product 103, they could do this in one of the following manners: 1. Maintain the same volume of production. 2. Increase the volume of production. 3. Lower the volume of production. 4. Substitute 102 production capacity with 103 if the 103 facility has not sufficient capacity to exploit economies of scale Analysis of the P&L statement of 31 December 2004 If we have a look at the P&L statement for the 2004 it is obvious that product 103 is......

Words: 5438 - Pages: 22

Manufacturing Company

...Product Differentiation A differentiates itself from its competitors when it provides something unique that is valuable to buyers beyond simply offering a low price (Blackwell publishing, 2009). Big Drive Auto can differentiate by providing a superior protection package. The protection package vehicles will be given oil changes free of charge as long as the consumer owns the vehicle. Tire rotations and balancing of wheels will also be free of charge. Big Auto Drive should employ a service team that is consistently courteous and polite to customers and who provide excellent service to customers. Top notch certified mechanics are available to meet the needs of the customer. The maintenance package will allow consumers to receive car washes and rentals cars at no additional charge. With these sorts of incentives the likelihood of car sales will be increased. When consumers are satisfied they tend to put in a good word with friends and family members. This type of praise will increase the possibility that consumers will revisit Big Drive Auto to purchase a vehicle for them, trade in their vehicle, or purchase a vehicle for a family member.   With the purchase of a new vehicle Big Drive Auto will offer the consumer free gas for a range of two to four months. Incentives and cash rebates will also be an appropriate recommendation for Big Drive Auto as well. According to All Business.com (1999 - 2009), Manufacturers often offer special incentives to both customers......

Words: 331 - Pages: 2

Superior Manufacturing Company

...cost associated with product 103 is fixed cost and Super Manufacturing Company will have to bear this fixed cost regardless of its decision to produce product 103 or not. Currently, product 103 incurs net loss of $2.209 million, and if Super Manufacturing Company decides not to produce product 103, then it will incur additional loss of $2.671 million through net contribution lost by product 103. However, if product 103 is dropped then it will increase the net loss of Super Manufacturing Company to $3.359 million. Hence, Waters’ decision to keep the product 103 and use its contributions to cover the fixed cost is a good decision. Q2.)  Should Superior Manufacturing Company lower as of January 1, 2006 its price of product 101? What will be the new price of product 101? The fixed and variable cost structure of product 101 shows that 54% of its standard cost is fixed and 46% is variable. However, a decrease in product 101 sales units will result in lost contribution because the larger part of cost is fixed and Superior Manufacturing Company will have to bear the fixed cost regardless the number of units sold. Hence, lower the number of sales units, lesser will be the recovery of fixed cost, therefore, Superior Manufacturing Company is suggested to lower its price in order to increase number of sales units of product 101. Pricing Decision Based on alternate of sales price and quantity demand, Superior Manufacturing Company is suggested to a set the sales price at $20.50, by......

Words: 864 - Pages: 4