Shelby Shelving

Case Analysis: SHELBY SHELVING

Case Synopsis

Shelby Shelving is a small company that manufactures two types of shelves for grocery stores – a standard model (Model S) and a heavy-duty model (Model LX). During a meeting with management, about the upcoming month’s operating plan, concerns were expressed about the profitability of the company. In response to their concerns, both the plant’s engineer and controller made suggestions on how to best alleviate these concerns and maximize profits.

State the Assignment Question

Will Shelby Shelving’s profitability issue be solved by implementing the engineer’s recommendation or the controller’s recommendation?

Case Analysis

Shelves are manufactured for grocery stores by the small company Shelby Shelving. There are two types of shelves that are made; model S which is standard and model LX which is for heavy duty usage. The standard model shelves, Model S, are sold for $1800. While the heavy duty shelves, Model LX are sold for $2100. These are fixed prices that management believes cannot be raised due to market competition. To determine which model should be produced at a higher or lower rate based on production costs and profit cost of production is examined. There are two different opinions from within the organization in regards to profitability and production. The plant’s engineer believes it would be more profitable to cut back on the production of Model S shelves. The plant’s engineer based his assumption on the fact that Model S shelves are sold for $1800, while the costs to produce the product is $1839, which exemplifies no profit for the product individually. While, if the plant’s engineer is correct would have a valid point, the controller of the plant opposes with the idea that there should not be lower production of Model S, based on the impact of Model S’ sales to overhead costs.

Data Analysis to Support Decision

The plant’s engineer believes it would be more profitable to cut...