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A division of Hewelett-Packard Company changed its production operations from

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A division of Hewelett-Packard Company changed its production operations from one where a large labor force assembled electronic components to an automated production facility dominated by computer-controlled robots. The change was necessary because of fierce competitive pressures. Improvements in quality, reliability, and flexibility of production schedules were necessary just to match competition. As a result of the change, variable costs fell and fixed costs increased, as shown in the following assumed budgets;Old Production Operation Old Production Operation;Unit variable cost;Material $0.88 $0.88;Labor $1.22 0.22;Total per unit $2.10 $1.10;Monthly fixed costs;Rent and depreciation 450,000.00 $875,000.00;Supervisory labor 80,000.00 175,000.00;Other 50,000.00 90,000.00;Total per month $580,000.00 $1,140,000.00;Expected volume is 600,000 units per month, with each unit selling for $3.10 Capacity is 800,000 units.;1. Compute the budgeted profit as the expected volume of 600,000 units under both the old and the new production environments.;2. Compute the budgeted break-even point under both the old and the new production environments.;3.Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.;4.Discuss the effect on profits if volume increases to 700,000 units under both the old and the new production environments.;5.Comment on the riskiness of the new operation versus the old operation.

 

Paper#27684 | Written in 18-Jul-2015

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