Brunswick Plastics

Acct 707- Summer 2013

Case Study 5 – Brunswick Plastics

Brunswick Plastics was an injection molding company in the Maritimes, Canada. The year of this case was 1986, which was known as an especially a good business year for this particular industry. Between 1984 and 1986, the company machine hour capacity increased from 40% to 50%. Their product line also increased from 30 to 50 different products. However, the process of producing so many different products required many labor and machine hours. As of 1986, the company’s division manager, Mr. Michael Smith estimated sales of $1.2 million, which would basically reach the break-even point. However, Michael Smith continued to add to the production line, as he thought that that would be the fastest way to increase future profits.

Nonetheless, this case study is about the critical pricing decision that Mr. Smith needs to make in order to win the bid on a large contract to manufacture 150,000 milk crates for the Diary Council in Canada. Mr. Smith is challenged with the best way to calculate the appropriate cost per unit and also how to allocate the manufacture overhead for this special order. It was understood that if the price of the bid was too high, Brunswick Plastics can lose the chance to get the contract. If the price is too low, it would cause a loss for the company.

BP has a lot of unused capacity that needs to be utilized, and therefore, based on the company’s good reputation for providing high quality products, Mr. Smith should present his $3.00 per bid offer to the Diary Council. Furthermore, the market price range between $2.90 and $3.10 per unit, so, Mr. Smith has a very good chance of winning the bid at $3.00 per unit. This contract would result in a profit for the company, and could lead to future business with the Diary Council.

Ques 1: Normally PFMOH is fixed. Therefore, based on the unused capacity, adding this new contract to the product should not change the PFMOH....