Superior Manufacturing Company Case Study

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Other Income

Fixed Costs

SGDI

$ 51,00

$ 5.423,44

$ 10.681,00

volume

unit price

Sales

Profit(Loss) p. unit

Profit(Loss) total

600

$ 39,76

$ 16.212,90

$ -12,73

$ -7.640,11

650

$ 37,70

$ 17.563,98

$ -10,68

$ -6.939,00

700

$ 35,93

$ 18.915,05

$ -8,91

$ -6.237,88

750

$ 34,40

$ 20.266,13

$ -7,38

$ -5.536,77

800

$ 33,07

$ 21.617,20

$ -6,04

$ -4.835,66

850

$ 31,89

$ 22.968,28

$ -4,86

$ -4.134,55

900

$ 30,84

$ 24.319,35

$ -3,81

$ -3.433,44

950

$ 29,90

$ 25.670,43

$ -2,88

$ -2.732,33

1000

$ 29,05

$ 27.021,50

$ -2,03

$ -2.031,22

1050

$ 28,29

$ 28.372,58

$ -1,27

$ -1.330,11

1100

$ 27,59

$ 29.723,65

$ -0,57

$ -629,00

1150

$ 26,96

$ 31.074,73

$ 0,06

$ 72,11

1200

$ 26,38

$ 32.425,80

$ 0,64

$ 773,23

1250

$ 25,84

$ 33.776,88

$ 1,18

$ 1.474,34

1300

$ 25,35

$ 35.127,95

$ 1,67

$ 2.175,45

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It is obvious that for volumes higher than 1 150 000 product 103 is actually profitable. These calculations are made without taking into consideration the expected 5% diminishment of the prices of materials and supplies in 2006.

(did not take into consideration the change of price of sales, admin, indirect labor…)

Sensitivity analysis

In order to make recommendations for a possible strategic course of actions we need to take in consideration the variance of some key indicators.

These are:

- The operating capacity of the facility and the level at which it operates now.

- Possible changes on the market volume and company’s market share(expected reactions from the competitors)

- Potential savings

- Inventory costs

Strategic scenarios

Having in mind the analysis of the current situation we could offer some scenarios for strategic actions to the management of Superior Manufacturing.

Referring back to the first paragraph we can explore the following options:

Stop the production of product 103:

- Stop production and any business related to product 103.

- Stop production but outsource it to another company and continue the distribution.

- Stop production and use the available production capacity in order to produce product 101 or 102.

- Stopping the production of product 103 in the current situation would mean that the company will no longer produce a non profitable product. This will bring to avoiding a possible potential loss of at about 2.2 million $ assuming expected sales of 1million units.

On the other hand it will bring as a loss all the non variable, fixed expenses, missed sales profit, restructure of the workforce etc. To calculate these we assume that in short