Catawaba Case

1 Background

Catawba industrial company is a key player in the automatic industrial painting systems and related equipment market. The company employs about 1200 workers and has more than $200 million in sales. The compressor department is manufacturing a standard compressor with its full capacity. Currently, the manufacturing department is producing 10 units of standard to fulfill the fix demand of own paint system and 14 units for the market. The current cost system for Catawba is process costing system where costs are allocated to each individual unit of product which may allow non-manufacturing costs to be included in the total process cost. Catawba implements a policy of reviewing any changes to its manufacturing and marketing plans in November and May each year.

2 Problem and Issues

The problem faced by Catawba is finding the most efficient plan of producing compressors, including both standard and light-weight models, which the highest financial return can be generated in the future. To solve this problem, the following issues need to be considered:

First, is it effective for the current manufacturing plan without producing on Sunday? We need to identify the flaws of current manufacturing plan and then make adjustments accordingly; Second, is it feasible for Catawba producing light-weight compressors? This depends on whether the light-weight compressor could generate higher profit and the new production plan is able to bring about much more financial returns; Third, what is the most profitable price and volume for each compressor under full capacity of the manufacturing department? With limited resources of direct labor hour, we need to find out what is the most efficient price and volume plan to solve the problem.

3 Analysis of problem and issues

In table 1, we can see that other manufacturing overheads is the only fix cost that can be saved. The difference of negative $2777 between the contribution margin (CM) and the fix cost savings indicates...