Allocation of Marks
uFrom the overall evaluation of the expenses and revenues contribution margin per unit is derived for the both production facilities under normal and overtime production.
The calculation indicate that use of Port Macquarie is much beneficial for the company rather than Coffs Harbour, as it increases cost of production.
The limitation is derived in the assessment, which is compensated with actions to reduce the negative impact of the identified limitations.
Calculating the contribution margin per unit under normal production and under over time production
|
Contribution margin per unit under normal production |
||
|
Particulars |
Port Macquarie |
Coffs Harbour |
|
Selling Price |
$ 450.00 |
$ 450.00 |
|
Manufacturing variable cost per unit |
$ 216.00 |
$ 264.00 |
|
Marketing variable cost per unit |
$ 42.00 |
$ 42.00 |
|
Contribution margin (Revenue – Variable) |
$ 192.00 |
$ 144.00 |
|
Particulars |
Port Macquarie |
Coffs Harbour |
|
Selling Price |
$ 450.00 |
$ 450.00 |
|
Manufacturing variable cost per unit |
$ 216.00 |
$ 264.00 |
|
Marketing variable cost per unit |
$ 42.00 |
$ 42.00 |
|
Extra variable cost |
$ 24.00 |
|
|
Contribution margin (Revenue – Variable) |
$ 192.00 |
$ 120.00 |
|
Particulars |
Port Macquarie |
Coffs Harbour |
|
Fixed cost manufacturing |
$ 10,800,000 |
$ 3,456,000 |
|
Fixed cost marketing |
$ 6,840,000 |
$ 3,340,800 |
|
Total fixed cost |
$ 17,640,000 |
$ 6,796,800 |
|
Contribution margin |
$ 192.00 |
$ 144.00 |
|
Breakeven point (Fixed cost / contribution margin) |
73,500.00 |
47,200.00 |
|
Particulars |
Port Macquarie |
Coffs Harbour |
|
Fixed cost manufacturing |
$ 8,640,000 |
$ 4,320,000 |
|
Fixed cost marketing |
$ 5,472,000 |
$ 4,176,000 |
|
Total fixed cost |
$ 14,112,000 |
$ 8,496,000 |
|
Contribution margin |
$ 192.00 |
$ 120.00 |
|
Breakeven point (Fixed cost / contribution margin) |
73,500.00 |
70,800.00 |
|
Selling Price |
$ 43,200,000 |
$ 43,200,000 |
||
|
Manufacturing variable cost |
$ 20,736,000 |
$ 25,344,000 |
||
|
Manufacturing fixed cost |
$ 8,640,000 |
$ 4,320,000 |
||
|
Marketing variable cost |
$ 4,032,000 |
$ 4,032,000 |
||
|
Marketing fixed cost |
$ 5,472,000 |
$ 4,176,000 |
||
|
Extra variable cost |
$ 2,304,000 |
|||
|
Total cost |
$ 38,880,000 |
$ 40,176,000 |
||
|
Operating income |
$ 4,320,000 |
$ 3,024,000 |
|
Selling Price |
$ 51,840,000 |
$ 34,560,000 |
||
|
Manufacturing variable cost |
$ 24,883,200 |
$ 20,275,200 |
||
|
Manufacturing fixed cost |
$ 10,368,000 |
$ 3,456,000 |
||
|
Marketing variable cost |
$ 4,838,400 |
$ 3,225,600 |
||
|
Marketing fixed cost |
$ 6,566,400 |
$ 3,340,800 |
||
|
Extra variable cost |
$ 1,036,800 |
|||
|
Total cost |
$ 47,692,800 |
$ 30,297,600 |
||
|
Operating income |
$ 4,147,200 |
$ 4,262,400 |
Findings
From the overall evaluation it could be understood that conducting higher production in Coffs Harbour plant will only increase expenses of the company, while declines the operating income generated from the operations. In addition, the total operating income after the increment in production process has relevantly declined, which was preciously not present during the normal process.
Consequently, the over usage of Coffs Harbour plant needs to be omitted, as extra variable expenses are incurred due to the over use of the facility. Furthermore, the calculation sheds light on the low usage, which is been conducted on Port Macquarie.
Therefore, the decline in production of generators on Coffs Harbour needs to be conducted, while increment in production can be done on Port Macquarie. This move could help in improve the level of production while reduce the cost incurred from production.
The major limitations that could arise from the analysis is the transportation cost of finished goods, which is not considered in the calculation. The evaluation of other overheads cost also needs to be evaluated, as it might increase the expenses from production function (Hatch et al., 2017).
Action items/limitations
The major limitation that could be identified from the overall analysis is the usage of Coffs Harbour facility for increased production units, which is directly affecting the overall production cost of the company. With the continuous production of in Port Macquarie the identified limitation of high expenses can be reduced.
In addition, the second limitation could arise from the non-evaluation of transportation cost of finished goods from the facility to stores. The inclusion of cost could eventually help in detecting the expenses and income generated from the production in both facilities.
References
van Asseldonk, M., van Wagenberg, C. P. A., & Wisselink, H. J. (2017). Break-even analysis of costs for controlling Toxoplasma gondii infections in slaughter pigs via a serological surveillance program in the Netherlands. Preventive veterinary medicine, 138, 139-146.
Hatch, M. D., Daniels, S. D., Glerum, K. M., & Higgins, L. D. (2017). The cost effectiveness of vancomycin for preventing infections after shoulder arthroplasty: a break-even analysis. Journal of shoulder and elbow surgery, 26(3), 472-477.
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