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Superior Manufacturing Co.

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by

Crystal Chiu

on 8 April 2014

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Transcript of Superior Manufacturing Co.

Superior Manufacturing Co.

Company Overview
Product 103 Analysis
Losing $2.16 per unit, should we continue or terminate the product?
Product 101 Analysis
Samra will change the price to $22.50. How should we respond?
Cost Allocation
System ANalysis
Short-Run Recommendations
Objective: reduce costs
Revamp salary system
Outsource general administrative expenses
Variable Costing
Stop Vs Continue
Variable Costing
Sales Projection
New Salary System
50% base salary + 50% commissions
Outsource Services
General administration expenses make up ~12% of fixed costs
Based on Jim Harvey's speech structures
Agenda
Company Overview
Key Issues
Product 103 Analysis
Product 101 Analysis
Profitability Analysis
Cost Allocation System Analysis
Short-run Recommendations
Long-run Recommendations

Long-Run Recommendations
Objective: increase market sales, build customer rapport
Training program
Customer loyalty program
Product line expansion
Enhance Training program
Improve soft skills, productivity and product quality
Customer Loyalty Program
Product Line Expansion
CVK Consulting Company
Crystal Chiu, Veronica Yang, Kathy Zhang

Product 101 Product 102 Product 103
$1.40


($1.41)

($2.16)
Samra Company
Drop price to $22.50
Profitability ANalysis
Continue
Other considerations:
Lost sales from other products
Employee morale
Market share on re-entry
Solutions:
Short run: match standard price, adjust the expense
Long run: increase sales
6-months FC = $12,321,000
VC/unit = $10.29


Profit= Q * [Sales Price*(1-cash Discount%) - VC] - FC

How did Superior generate a profit of $713,000 in the first half of 2005?

Standard cost system: assigns all costs to three products on a per unit basis
Used for all levels of decisions making

Key Issues
1. Declining profitability

2. Declining industry prices

3. Inefficient cost allocation system

Average cash discount: 1.5%
increase by 0.5% every 2 years, up to 5%
Create other products in the industry
Variances
Sales Comparison
A large portion of Product 102's total sales was sold in first half of the year.
But what does this imply?
improve cash flows
motivates employees to sell products
How it reduces cost:
increased production reduces product costs
eliminates paying employees for non-value added work
How does it achieve objectives:
saves costs for customers
builds long-term relationships with customers
How it builds customer rapport:
provide faster response to inquiries
higher quality of products
How it increases achieves objectives:
increased sales from new products
improves customer convenience
hire external consultants
develop training courses
utilize idle factory capacity
Price: $24.50 $22.50
Sales 750,000 1,000,000
Expected decline in sales and price
Strengths:
Simple
Low-cost
Full-costing system
Weaknesses:
Lack of details
Misleading results
Decision making
outsource accounting costs, HR costs, other service costs
How it reduces cost:
reduces salaries paid for general administration
takes advantage of available lower costs outside of company
Recommendation:
Variable Costing for production-line decisions
The End
Thank you
Full transcript