Maharjan Manufacturing Pty Ltd: Analysis, Findings, And Allocation Plan
Calculation of Contribution Margin
Maharjan Manufacturing Pty Ltd is the medium sized company having its administration office based in Sydney, NSW. The company is engaged in the operating and manufacturing of generators since the year 1990. the company has 2 manufacturing plants those are based in Port Macquarie and Coffs Harbour, NSW.The manager of the company wants to enhance the sales and production in the year 2018. the main issue of the case is to decide about increasing the production and allocation of the increased production to 2 units.
Analysis
Calculation of contribution margin
Normal condition –
The contribution margin or the $ contribution per unit is selling price of the product reduced by the variable cost per unit for the product (Pettersson & Segerstedt, 2013). Contribution signifies the sales revenue portion that is not absorbed by the variable cost and is left for covering up the fixed cost. In the above solution, the contribution margin is computed through deducting the variable manufacturing cost, variable marketing cost and variable manufacturing overtime cost from the sales price per unit (Drury, 2013).
Break – even point –
Break – even point is the point at which the total cost of the product equals to the total revenue of the product. At the break – even point there is no profit or no loss as the revenue and costs are equal. The break – even point is calculated through dividing the fixed cost per unit of the product by variable cost per unit of the product (Potkany & Krajcirova, 2015).
Here in the given case, total fixed cost for Port Macquarie plant is $ 14,112,000 and the variable cost per unit $ 258. Therefore, break – even point will be $ 14,112,000 / $ 258 = 54,698 units approximately. On the other hand, total fixed cost for Coffs Harbour plant is $ 67,96,800 and the variable cost per unit $ 306. Therefore, break – even point will be $ 67,96,800 / $ 306 = 22,212 units approximately (Guarini, 2013).
Findings
In the given case, total fixed cost for Port Macquarie plant is $ 14,112,000 and the variable cost per unit $ 258. Therefore, break – even point will be $ 14,112,000 / $ 258 = 54,698 units approximately. On the other hand, total fixed cost for Coffs Harbour plant is $ 67,96,800 and the variable cost per unit $ 306. Therefore, break – even point will be $ 67,96,800 / $ 306 = 22,212 units approximately (Guarini 2013).
Allocation of 192,000 units production –
Optimal production plan is to produce 120,000 units at Port Macquarie and balance (192000 – 120000) = 72,000 units in Coffs Harbour. The reason behind this allocation is that it will utilize the maximum capacity that is (300 days * 400 units) for Port Macquarie and the contribution per unit for this plant are higher than Coffs Harbour.
The contribution margin is higher while 120,000 units are produced at Port Macquarie unit and 72,000 units are produced at Coffs Harbour unit. Therefore, the operating income will also be higher at this production allocation level as the fixed costs remain unchanged irrespective of the units produce at each plant.
Action items or limitations
The main problems faced during completing the task was that no details regarding the workers for any of the plants. However, before taking the final decisions regarding allocation of additional production details regarding the workers would have been provide more clear picture as the payment to workers is one of the major expenses for manufacturing units. Further, possibilities may be there that the workers for one plant is easy to engage and may be difficult for the other. Therefore it was the limitation while making the analysis and providing the findings.
Reference
DRURY, C.M. (2013). Management and cost accounting. Springer.
Guarini, G. (2013). Technological break-even point and labour productivity: theoretical and empirical aspects. Journal of Applied Economic Sciences, 8(2), pp.198-209.
Pettersson, A.I. & Segerstedt, A. (2013). Measuring supply chain cost. International Journal of Production Economics, 143(2), pp.357-363.
Potkany, M. & Krajcirova, L. (2015). Quantification of the volume of products to achieve the break-even point and desired profit in non-homogeneous production. Procedia Economics and Finance, 26, pp.194-201.