Brunswick Plastics
Case #1: Brunswick Plastics
Introduction
Brunswick Plastics, located in Canada, is an injection molding company. Brunswick Plastics produces 50 different products; however, they are not reaching capacity. Production required multiple labor hours, and since they weren’t at capacity, they were finishing a little above breakeven. The Division Manager of Brunswick Plastics, Michael Smith was informed of an opportunity for his company and must make a decision on whether or not to venture into this opportunity. Mr. Smith was informed of a project of producing 150,000 milk crates. He can place a bid for the project. However, Mr. Smith isn’t confident in the information that he has, and needs answers to best estimate the costs of producing the additional units. The costs that he knows are as follows:
Production Labor $0.14 Loading Labor 0.02 Crate Materials 1.71 Stamp Materials 0.04 TOTAL $1.91 per unit Stamping Machine $5,000 one-time cost Mr. Smith must make a critical pricing decision to have a competitive advantage in the bid process. He has specific questions which answered, will provide a confident grasp on the situation to enable him to make a decision on whether to place the bid and at what price. If the bid is too high, it will most likely be rejected, and the company would lose the opportunity to reach capacity and make a higher profit. But, if the bid is too low it would cause a loss for the company. We will answer Mr. Smith’s questions throughout this case analysis.
Question #1: Based on your interpretation of Exhibit 3, what is your estimate of the change in “PFMOH” cost if the factory were to run one extra batch of 150,000 milk crates?
Based on the interpretation of Exhibit 3, the linear regression that has the most accurate relationship with Plant Fixed Manufacturing Overhead (PFMOH) is Direct Labor Hours (DLH). Michael Smith calculated that 3,472 scheduled machine hours would be need,
Introduction
Brunswick Plastics, located in Canada, is an injection molding company. Brunswick Plastics produces 50 different products; however, they are not reaching capacity. Production required multiple labor hours, and since they weren’t at capacity, they were finishing a little above breakeven. The Division Manager of Brunswick Plastics, Michael Smith was informed of an opportunity for his company and must make a decision on whether or not to venture into this opportunity. Mr. Smith was informed of a project of producing 150,000 milk crates. He can place a bid for the project. However, Mr. Smith isn’t confident in the information that he has, and needs answers to best estimate the costs of producing the additional units. The costs that he knows are as follows:
Production Labor $0.14 Loading Labor 0.02 Crate Materials 1.71 Stamp Materials 0.04 TOTAL $1.91 per unit Stamping Machine $5,000 one-time cost Mr. Smith must make a critical pricing decision to have a competitive advantage in the bid process. He has specific questions which answered, will provide a confident grasp on the situation to enable him to make a decision on whether to place the bid and at what price. If the bid is too high, it will most likely be rejected, and the company would lose the opportunity to reach capacity and make a higher profit. But, if the bid is too low it would cause a loss for the company. We will answer Mr. Smith’s questions throughout this case analysis.
Question #1: Based on your interpretation of Exhibit 3, what is your estimate of the change in “PFMOH” cost if the factory were to run one extra batch of 150,000 milk crates?
Based on the interpretation of Exhibit 3, the linear regression that has the most accurate relationship with Plant Fixed Manufacturing Overhead (PFMOH) is Direct Labor Hours (DLH). Michael Smith calculated that 3,472 scheduled machine hours would be need,