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The Domestic Engines Co_CVA Analysis

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Question;Deciding where to produce (CMA, adapted) The Domestic Engines Co.;produces the same power generators in two Illinois plants, a new plant in;Peoria and an older plant in Moline. The following data are available for the;two plants;All fixed costs per unit are calculated based on a normal capacity usage;consisting of 240 working days. When the number of working days exceeds 240;overtime charges raise the variable manufacturing costs of addition units by;$3.00 per unit in Peoria and $8.00 per unit in Moline. Domestic Engines Cc.;is expected to produce and sell 192,000 power generators during the coming;wanting to take advantage of the higher operating income per unit at Moline;the company?s product manager has decided to manufacture 96,000 units at each;plant, resulting in a plan in which Moline operates at capacity (320 units;per day X 300 days) and Peoria operates at its normal volume (400 units per X;240 days). If you want to use Excel to solve this problem, go to the Excel;Lab at www.prenhall.com/horngren/costl3e and download the template for;Problem 3-49.;1. Calculate the breakeven point in units for the Peoria plant and for the;Moline plant;2. Calculate the operating income that would result from the production;manager?s plan to produce 96,000 units at each plant.;3. Determine how the production of 192,000 units should be allocated between;the Peoria and Moline plants to maximize operating income for Domestic;Engines. Show your calculations.

 

Paper#37323 | Written in 18-Jul-2015

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