Hilton Manufacturing

John Knotwell

ACCT 6350

10/10/2014

Case - Hilton Manufacturing

1) If the company had dropped product 103 as of January 1, 2004, what effect would that action have had on the $158,000 profit for the first six months of 2004?

The impact on the profit would have been to decrease the profit by about $2.5M. This would mean that this would now trend to an unprofitable move. It was wise NOT to divest the product in the first half.

2) In January 2005, should the company reduce the price of product 101 from $9.41 to $8.64?

Simple answer is maybe. The increase in units from 750,000 to 1,000,000 would show an increase in net income and would be a higher profit, but selling 33% more product is a risky move in general. Who’s to say that the competition won’t just follow suit?

750,000 Units 1,000,000 Units

Sales | 7,057,500.00 | 9.41 | 8,640,000.00 | 8.64 |

Less Variable Exp. | | | | |

Direct Labor | 1,747,500 | 2.33 | 1,747,500 | 2.33 |

Power | 30,000 | 0.04 | 30,000 | 0.04 |

Light/Heat | 22,250 | 0.03 | 22,250 | 0.03 |

Materials | 1,087,500 | 1.45 | 1,087,500 | 1.45 |

Supplies | 75,000 | 0.10 | 75,000 | 0.10 |

Repairs | 30,000 | 0.04 | 30,000 | 0.04 |

Compensation Insurance | 127,500 | 0.17 | 127,500 | 0.17 |

Total Variable Expense | 3,119,750 | 4.16 | 3,119,750 | 4.16 |

Contribution Margin | 3,937,500 | 5.25 | 4,484,182.00 | 4.48 |

Less Fixed Expenses | | | | |

Selling Expense | 1,635,000.00 | | 1,639,700.00 | 1.6397 |

General Administration | 619,000.00 | | 620,900.00 | 0.6209 |

Depreciation | 1,014,000.00 | | 1,017,200.00 | 1.0172 |

Interest | 94,000.00 | | 94,100.00 | 0.0941 |

Total Fixed Expenses | 3,362,000.00 | | 3,371,900.00 | |

Net Income | 578,636.50 | | 1,112,282.00 | |

3) What is HIlton’s most profitable product?

Product 101 has the highest sales and the highest net income for the period. It also has the highest variable costs, but that is directly tied to the production of...