Berkshire Threaded Fasteners Company Essay

863 words - 3 pages

1) Because the 300 series showed the highest losses in the first six months in 2000, if the company had dropped the 300 series as of January 1, 2000, what effect would that action have had on the profit for the first six months of 2000?Answer:Considering how we define variable and non variable costs, even if the company does not produce 300 series they should pay the fix cost.With reference to exhibit 2 first we define the nature of different cost and calculate the total cost while not producing, which only includes non variable cost, shown in below table.As we can see if the company did not produce 300 series in the first half of the year 2000 they would have faced a lost of 691,000 USD. While at production level of 501.276 units, the loss generated has been 115,000 USD. As a result total loss of the whole production will increase to -661,000 USD instead of the current loss of 85,000 USD.Therefore the company has made the right decision to produce to prevent higher levels of loss.
BERKSHIRE THREADED FASTENERS COMPANY

Profit & Loss by product

6 months: January 1st to June 30th, 2000

(000) US$

Production of 300 series

type of cost

not Producing 300 series

total US$

per 100 pcs

(000) US$

Labor

$351

0.70

variable

0

Raw Materials

$406

0.81

variable

0

Power

$15

0.03

variable

0

Repairs

$5

0.01

variable

0

Rent

$95

0.19

non variable

$95

Other Factory Cost

$55

0.11

non variable

$55

TOTAL manufacturing cost

$927

$1.85

$150

Selling Expense

$241

0.48

non variable

$241

General Administration

$90

0.18

non variable

$90

Depreciation

$185

0.37

non variable

$185

Interest

$25

0.05

non variable

$25

TOTAL cost

$1,469

$2.93

$691

Sales (Net)

$1,353

2.70

-

Profit (Loss)

-$115

-$0.23

-$691

Unit Sales (100 pcs)

501,276

Unit Sales (100 pcs)

0

Quoted Selling Price

USD 2.75

Quoted Selling Price

0

2) In July 2000, should the company reduce the price of the 100 series from $2.45 to $2.25? Assume the standard costs will be the same as in the first six months of 2000. Also assume that no discount will be granted on quoted selling price.Answer:As calculated in below table, its better that the company reduces the price of 100 series to 2.25 although the unit costs is equal to 2.29. Selling at price lower than this will have a better result due to higher level of sales unit as we can see selling at 2.45 USD will result in a loss of 134,000 USD while selling at 2.25 USD will result in less loss equal to 37,000 USD. This decision is also good in terms of company's strategy. Their industrials sales were 12 % for this series lowering the price would result in higher sales and increasing market share while other competitors wont be able to reduce their prices. But according to the demand being inelastic and the...

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