Tenalpina product line expansion production flow cold

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TenAlpina: Product-Line ExpansionProduction FlowCold Roll/CutHeat/Drop ForgeBoreDe-burr/PolishPackageInjection MoldCost: $35,000Life: 7 years (assume $0 salvage value)
Based on Giulia’s estimates, and assuming that the volumes for piton production and sales do not change, how many wall hammers would TenAlpina have to sell in order to have the same annual gross margin (in dollars) as it would if only pitons were sold?TenAlpina: Product-Line ExpansionCase Question 1
TenAlpina: Product Line ExpansionContribution Margin*Piton Production:no change from TenAlpina 1.Hammer:(a) $94 retail price target, less 35% markup ($33 rounded)(b) Note that we are organizing costs by fixed and variable, not by COGS and SG&A. There are fixed and variable costs of both types.HammerProductionPitonProduction*
TenAlpina: Product Line ExpansionRelevant Cost AnalysisHammerProductionCompute Point of Indifference and Safety Margin:
Your calculation in Q1 was the point of indifference based on cost data. Whatfactors might weight TenAlpina’s decision for or against producing the hammers? Additional fixed costsNew break-evenWeighted-average contribution marginProjected profit by productTenAlpina: Product-Line ExpansionCase Question 2
TenAlpina: Product Line ExpansionBreak-even Analysis(c)$57,500 wages and benefits x (6 legacy employees + 2 hired back employees)(d)$29,808 total utilities– ($0.18 x (4,200 x 12)) variable utilities for pitons+ $864 increased fixed utilities for new machine(e)$14,355 dep’n on legacy machines, n/c$35,000 / 7 yrs = $5,000/yr dep’n on new injection molding machine(f)$57,500 production employee wages and benefits + 10% = Giulia’s salaryPitonProductionCompute Combined Fixed Costs:HammerProduction
TenAlpina: Product Line ExpansionBreak-even Analysis – Wtd CM ApproachWtd CM = ($8.76 CM_Piton x 92.31% volume) + ($48.96 CM_Hammer x 7.69% volume) = $11.85PitonProductionHammerProduction
TenAlpina: Product Line ExpansionProjected ProfitPitonProductionHammerProductionTotalWe’d like to know profitability by product to answer Q2.How can we divide up costs? That’s what we will cover in Part 2!
Incremental fixed cost approach to add a product line may failto reflect benefits/efficiencies of additional product.Division of fixed costs is difficult and can lead to very different outcomes.Weighted CM is handy for a quick breakeven and sales mix calculation.Cost allocation…directly traceable vs. common costs …….to be continued!TenAlpina: Product Line ExpansionClass Concepts
Class 9 Homework due by 8am Feb 18 6-36Review:14-36, 14-39, 14-40, 14-49, 14-57All questions are in Connect

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