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Cisco Manufacturing Pty Ltd (Cisco) is a medium-sized manufacturing company with three plants and an administration office in Victoria. Cisco has been operating since 1985

Cisco Manufacturing Pty Ltd (Cisco) is a medium-sized manufacturing company with three plants and an administration office in Victoria. Cisco has been operating since 1985 and manufactures one radiator for triple B semi-trailers. Cisco is determined to keep all of its manufacturing within its three Victorian plants located in Northcote, Brunswick and Preston. Cisco is critically aware that many Australian manufacturing companies are relocating overseas because of lower labour costs. In an attempt to keep costs to a minimum Cisco users recycled products where possible, keeps labour cost down by employing apprentice labour and negotiating efficient labour contacts with its more experienced workers, and uses state of the art digital manufacturing equipment.

The three plants have their own separate and unique costing systems and have been designed to keep overall costs under control. Cisco is acutely aware that it must comply with various environmental guidelines and is manufacturing its products along strict emission guidelines. Although these emission guidelines will result in higher initial costs it is anticipated that these costs will be recouped once production reaches full capacity. The following information is available for each of the three manufacturing plants.

The annual production of the three plants runs at 260 days per year. Other production details include:

Northcote Manufacturing Plant

Currently annual production at the Northcote plant is 170 units per day, however this

could be increased to 240 units per day if required.

The following information is based on the current annual production of 170 units per day.

$

$

Selling Price per unit

700

Variable Materials costs per unit

160

Variable Labour costs per unit

160

Variable Overhead costs per unit

20

Fixed Manufacturing (annual) costs at current capacity

1,664,000

Fixed Marketing (annual) costs at current capacity

1,248,000

Brunswick Manufacturing Plant

Currently annual production at the Brunswick plant is 190 units per day, however this

could be increased to 310 units per day if required.

The following information is based on the current annual production of 190 units per day.

$

$

Selling Price per unit

700

Variable Materials costs per unit

165

Variable Labour costs per unit

150

Variable Overhead costs per unit

30

Fixed Manufacturing (annual) costs at current capacity

1,872,000

Fixed Marketing (annual) costs at current capacity

1,404,000

Preston Manufacturing Plant

Currently annual production at the Preston plant is 185 units per day, however this

could be increased to 310 units per day if required.

The following information is based on the current annual production of 185 units per day.

$

$

Selling Price per unit

700

Variable Materials costs per unit

150

Variable Labour costs per unit

145

Variable Overhead costs per unit

35

Fixed Manufacturing (annual) costs current capacity

1,456,000

Fixed Marketing (annual) costs at current capacity

1,092,000

The above variable and fixed manufacturing costs are based on current production levels at the three plants however each of these costs will increase once maximum production levels have been attained as shown below:

Northcote Manufacturing Plant

Minimum

Capacity

Normal Capacity

Maximum Capacity

Variable and fixed costs

Between 60 159 units per day

Between 160 179 units per day

Between 180 240 units per day

Variable Materials costs per unit

$160

$160

$170

Variable Labour costs per unit

160

160

165

Variable Overhead costs per unit

20

20

25

Fixed Manufacturing (annual) costs

234,000

1,664,000

2,106,000

Fixed Marketing (annual) costs

156,000

1,248,000

1,638,000

Brunswick Manufacturing Plant

Minimum

Capacity

Normal Capacity

Maximum Capacity

Variable and fixed costs

Between

60 179 units per day

Between 180 219 units per day

Between 220 310 units per day

Variable Materials costs per unit

$160

$165

$170

Variable Labour costs per unit

160

150

155

Variable Overhead costs per unit

20

30

30

Fixed Manufacturing (annual) costs

312,000

1,872,000

2,860,000

Fixed Marketing (annual) costs

234,000

1,404,000

2,002,000

Preston Manufacturing Plant

Minimum

Capacity

Normal Capacity

Maximum Capacity

Variable and fixed costs

Between

60 179 units per day

Between 180 219 units per day

Between 220 310 units per day

Variable Materials costs per unit

$160

$150

$160

Variable Labour costs per unit

160

145

155

Variable Overhead costs per unit

20

35

30

Fixed Manufacturing (annual) costs

156,000

1,456,000

1,872,000

Fixed Marketing (annual) costs

156,000

1,092,000

1,456,000

Cisco has just completed an extensive marketing promotion campaign aimed at all triple B semi-trailer manufacturers in Australia and expects orders to jump from its current production levels to 150,000 units per year.

Assume you are the Management Accountant of Cisco Manufacturing Pty Ltd and you have been asked by the Managing Director to prepare a powerpoint presentation at its next board meeting. Your report should include the following:

Calculate and show how the production of 150,000 radiators per year should be allocated between the plants to maximise the operating income for Cisco Manufacturing Pty Ltd assuming all units produced were sold.

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