The general manager oversees the sewing department he

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The general manager oversees the sewing department. He is paid a salary of $70,000 and approximately 30% of his time is spent directly in the sewing department. Direct materials are nominal. The labor rate is $20 per hour and it takes .3 of an hour to sew a belt and two hours to sew a jacket. The sewing department uses 15% of the factory floor space. Production Yield The normal production yield from one hide allows for a maximum of two jackets with the remainder of the hide producing 10 belts, or they can select to produce only belts from the hide, in which case they can produce 50 belts and zero jackets. The company is free to choose between these two alternatives on a “hide by hide” basis, thus this choice can be made immediately prior to the sewing activity. Atezado Ltd. operates out of a factory that it leases on a multi-year lease and is currently using 80% of the space. They have not had success in sub-leasing the excess space due to the strong fumes emitted by the tanning process. The company uses JIT to minimize its inventory levels.
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Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC 105 General Information Cost per single raw hide $ 130 Selling price of a jacket $ 700 Selling price of a belt $ 25 Maximum hides processed per annum # 3,210 capacity Estimated future hide procurement # 1,200 next year 2014 # 1,300 2015 Overhead Overhead includes the electricity, administration, and factory lease. The administration is head office expenses, insurance and marketing. The table below excludes the chemicals and equipment used in tanning, the drying department equipment and all of the management salaries. A number of years ago there was extensive modifications done to the factory. The manager only remembers that the modification took place sometime in the last six years. Year of Hides (#) Total Operation Processed Overhead $$ 1 10 185,209 2 350 280,889 3 450 289,651 4 710 295,168 5 690 323,985 6 720 322,276 7 800 438,183 8 790 331,768 9 809 322,701 10 780 331,678 11 805 336,912 12 1000 368,747
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Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC 106 Required: 1) Estimate the marginal cost to make 50 belts, 50 BELTS 2 JACKETS & 10 Belts HIDE ELECTRICITY CHEMICALS _____________ CM $$ _____________ $$ 2) Estimate the marginal cost to make 2 jackets and 10 belts.
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Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC 107 3) Prepare an optimal projected production plan (income statement) for 2014 . Drying Tanning Sewing Total Raw Materials Batch Cost $130 (1200) Direct Fixed Costs Common Costs Note; $106,133 è 4) Atezado is considering the outsourcing of the drying department. Calculate the savings that Atezado could anticipate if it outsourced this department. What other issues should management consider?
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Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC 108 Atezado 2014 (old exam) 5) Independent of part 4. A special order has been received from Just Belts for Atezado to supply #20,000 belts during 2015. (#1,300 hides) What is the minimum price that they would require to say yes to this order if they wanted this order to add $30,000 of profit to their bottom line?
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  • Winter '14
  • Sauder School of Business, J. Kroeker

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