Brunswick Plastics, located in Canada, is an injection molding company. Brunswick Plastics produces 50 different products; however, they are not reaching capacity. Production required multiple labor hours, and since they weren’t at capacity, they were finishing a little above breakeven. The Division Manager of Brunswick Plastics, Michael Smith was informed of an opportunity for his company and must make a decision on whether or not to venture into this opportunity. Mr. Smith was informed of a project of producing 150,000 milk crates. He can place a bid for the project. However, Mr. Smith isn’t confident in the information that he has, and needs answers to best estimate the costs of producing the …show more content…
Production Labor $0.14 Loading Labor 0.02 Crate Materials 1.71 Stamp Materials 0.04 Variable Overhead 0.18 PFMOH 0.10 TOTAL COST $2.19 per unit
At $0.81 a unit for 150,000 units, Brunswick’s annual profit would be $121,500.
Question #5: What is your advice to Mr. Smith regarding the milk crate opportunity? Be specific and show the calculation supporting your advice. Assuming the original fixed costs will not be changed, we would recommend that Mr. Smith place the bid for the project. A price of $3.00 is the average current market price; however, considering Mr. Smith’s need for the contract to alter his contribution margin and to meet capacity, we recommend him bidding at $2.90. His opportunity cost of not getting the bid is greater than the $0.10 he will lose if he made a bid at $2.90.The chances are fair for Mr. Smith’s bid to be accepted at this price. If it is accepted, Brunswick would increase their profit by $106,500 annually. They would also come much closer to meeting capacity if they placed the bid. $2.90 Market Price per unit-$2.19 Total Cost per unit= $0.71*150,000 units=$106,500 of profit
Question #6: What overall strategic advice do you have for Mr. Smith? What isn’t the business doing better, given the new