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Japans Economic Malaise Analysis

In: Business and Management

Submitted By win3442
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Business Brief

Portal Corporation has two plants located in Utah, one in Ogden and the other in Sandy. The company produces laser printers. (Datar & Schoenebeck, 2014, p. 111) Currently, the company is operating under normal capacity at a rate of 240 days annually. In 2012, Portal Corporation is forecasting to produce 120,000 units of laser printers which will exceed the company’s normal production usage capacity to 300 days per year. This will require the company to pay overtime for their workers thus it will increase the variable costs per unit for Ogden by $5.00 per unit and Sandy by $10.00 per unit. The question here is how we spread the 120,000 units between Ogden and Sandy?

Analysis

When looking at the income statement of both locations, we found that Sandy is more profitable than Ogden. Sandy which has $1,872,000.00 appears to have less fixed costs than Ogden at $4,200,000.00. Therefore, the breakeven point for Sandy is the point that there is no profit or loss is 9,600 units comparing to Ogden of 20,000 units. In essence, Ogden has to produce more units than Sandy in order to breakeven. Fixed Costs are irrelevant when deciding which plant to reach maximum production capacity but, the contribution margin per unit analysis indicates that Ogden is more profitable than Sandy. This has happened because Ogden’s variable costs per unit are $110 whereas Sandy’s is at $125. Also, additional cost per unit for Ogden is only $5.00 and Sandy’s is $10.00 per unit.

Conclusion

Portal Corporation is better off to assign 75,000 units to Ogden and only 45,000 units for Sandy leaving the difference between the 300 days maximum capacity and the 240 days of normal capacity to be absorbed by Ogden. It will be more profitable for the whole company to have more units produced at Ogden with less overtime costs per unit of $5 than the $10 per unit at…...

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