Hilton Manufacturing Company Should Product 103 have been dropped? (3 ways to see) 1) Lost sales ($5,202) Cost savings DL $1,341 Compensation insurance 67 DM 946 Power 59 Supplies 68 2,501 Repairs 20 Lost CM: total impact of dropping ($2,701) 2) Loss eliminated Costs that remain Rent Property tax Property insurance Indirect labor Compensation ins.
Light and heat Building service Selling expense General admin Depreciation Interest Other income Total impact 3) $404 $365 78 103 448 21 20 14 917 346 713 102 (10) 3,117 (2,703) nit CM (see later) Total impact: lost CM = 5. 3909 x 510,276 = $2,702 Which product is most profitable? 101 VC DL Compensation insurance Power DM Supplies Repairs Total Selling price CM/unit CM ratio . 1164 2. 3282 . 0403 1. 3766 . 0941 .
0319 3. 9875 9. 3084 5. 3209 57% . 1137 2. 2740 . 0929 1.
7542 . 1774 . 0557 4. 4709 9. 6900 5. 2191 53% . 1337 2.
6746 . 1171 1. 8862 . 1363 . 0396 4. 9875 10. 3784 5.
3909 52% Products 102 103 (If the plant is near capacity of available direct labor hours) CM/capacity (LH) $2. 285/h 2. 95/h 2. 016/h Which is the most profitable product depends on the decision question and the corresponding criterion 2 Should price of 101 be dropped to $8. 64? VC unit costs forecasted 1991 change DL 2. 3282 Compensation insurance . 1164 Power .
0403 Materials 1. 3766 +5% Supplies . 0941 +5% Repairs . 0319 unit costs 1992 2. 3282 . 1164 . 0403 1.
4454 . 0988 . 0319 Total 3. 9875 4. 0610 (cost increase 7% of heat and light is ignored because the increase is fixed regardless of the pricing decision) Price cash discount (1. 8%) vc unit CM x units Total CM $9. 41 0.
1016 4. 0610 5. 2474 750,000 $3,935,550 $8. 64 . 0933 4. 0610 4. 4857 1,000,000 $4,485,700 What is the minimum quantity to sell at $8.
64 to be not worse off than remaining at the $9. 41? 3,935,550/4. 4857 = 877,355 margin of safety 122,645 units What is the minimum quantity to sell at $9. 41 to be not worse off than reducing the price? 4,485,000/5,2474 = 854,842 need to sell 104,842 more units 3
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