1. Evaluate the plant supervisor's proposal by computing the annual effect on income for a normal year's volume.

The plant supervisor's proposal suggests eliminating an alignment and adjustment operation during switch assembly, which would reduce production time but result in some defective switches. The proposal indicates that the average number of defective switches would be 50 for every 1,000 good switches produced.

Let's calculate the annual effect on income:

• Annual Production Volume (Normal Year): 360,000 units (30,000 units per month)
• Defective Switches per 1,000 Good Switches: 50
• Total Defective Switches: (360,000 / 1,000) * 50 = 18,000 defective switches

Now, calculate the cost impact:

• Savings in Production Time per Switch: 4 minutes
• Labor Hours Saved per Switch: 4 minutes / 60 minutes per hour = 0.0667 hours
• Total Labor Hours Saved: (360,000 units) * (0.0667 hours per unit)
• Labor Cost Savings: Total Labor Hours Saved * Direct Labor Rate per hour

Adjust for the defective switches:

• Adjusted Annual Production Volume: 360,000 - 18,000 = 342,000 units
• Adjusted Labor Cost Savings: Adjusted Annual Production Volume * Labor Cost Savings per unit

Compare the adjusted cost savings with the cost of producing the defective switches, including the cost of disposal.

• Defective Switches Cost: 18,000 * Cost of Defective Switches

Compare the net impact on income.

1. Assume the plant supervisor's proposal has been accepted. Determine the optimum selling price, sales volume, and production volume for the fourth quarter.

Given the independent market survey results, evaluate the profitability of each option:

• Revenue for each option: Selling Price * Expected Sales Volume
• Cost of Goods Sold: Adjusted Production Volume * Standard Cost per unit
• Gross Profit: Revenue - Cost of Goods Sold

Select the option with the highest gross profit as the optimum one.

1. The Eagle Division is regarded as a profit center. Should it be? Explain.

As a profit center, the Eagle Division is responsible for its profits and costs, including the allocation of common administrative services. Whether it should be considered a profit center depends on various factors, including the degree of autonomy it has in decision-making, its contribution to the overall company objectives, and its ability to control its costs and generate profits.

If the division has a significant impact on the company's overall performance and has the ability to make strategic decisions independently, it may be appropriate to consider it a profit center. However, if the corporate head office exerts significant control and decision-making authority, it might be more appropriate to view it as a cost center.

1. Evaluate the Birdy Company's approach to performance reporting, evaluation, and control. Make specific recommendations for improvement.

The Birdy Company's approach includes divisional profit responsibility, budget reviews, monthly performance monitoring, and quarterly reviews with senior executives. However, the challenges faced by the Eagle Division suggest areas for improvement:

Market Analysis: The company could benefit from a more proactive market analysis to anticipate and respond to changes in competition and pricing.

Flexibility in Budgeting: The budgeting process should allow for more flexibility to adapt to unexpected market changes.

Communication and Collaboration: Improved communication between divisions and the corporate head office may enhance the company's ability to respond to challenges collectively.

Strategic Planning: A more robust strategic planning process may help divisions like Eagle better position themselves in the market.

Performance Metrics: Consider refining performance metrics to include non-financial indicators, such as customer satisfaction and innovation, to provide a more comprehensive view of divisional performance.

Risk Management: Develop a more comprehensive risk management strategy to identify and mitigate potential risks, such as emerging competition.

Explanation:

Let's delve deeper into each aspect:

Evaluate the plant supervisor's proposal:

Labor Cost Savings: Calculate the labor cost savings from the reduced production time.

Defective Switches Cost: Determine the cost of producing and disposing of defective switches.

Net Impact on Income: Compare the labor cost savings with the cost of defective switches to assess the net impact on income.

Assume the plant supervisor's proposal has been accepted:

Revenue Calculation: Calculate the revenue for each option based on the selling price and expected sales volume.

Cost of Goods Sold: Determine the cost of goods sold for each option, considering the adjusted production volume and standard cost per unit.

Gross Profit Calculation: Compute the gross profit for each option by subtracting the cost of goods sold from revenue.

Optimal Choice: Select the option with the highest gross profit as the optimum one for the fourth quarter.

The Eagle Division as a profit center:

Autonomy: Evaluate the degree of autonomy the Eagle Division has in decision-making, especially regarding pricing, production, and strategic planning.

Contribution to Company Objectives: Assess the division's contribution to the overall company objectives, such as profitability, market share, and customer satisfaction.

Cost Control: Analyze the division's ability to control its costs and generate profits independently.

Decision-Making Authority: Consider whether the corporate head office exerts significant control and decision-making authority over the division.

Evaluate Birdy Company's Approach to Performance Reporting, Evaluation, and Control:

Market Analysis: Assess the company's process for monitoring and analyzing the market to identify potential threats and opportunities.

Flexibility in Budgeting: Examine the budgeting process to determine if it allows for adjustments in response to unexpected changes in the business environment.

Communication and Collaboration: Evaluate the effectiveness of communication and collaboration between divisions and the corporate head office in responding to challenges.

Strategic Planning: Assess the company's strategic planning process to ensure that divisions are well-positioned to adapt to changes in the market.

Performance Metrics: Review the performance metrics used to evaluate divisions, considering whether they provide a comprehensive view of both financial and non-financial indicators.

Risk Management: Examine the company's risk management strategy to identify and mitigate potential risks, such as emerging competition or market changes.

These considerations will provide a comprehensive analysis of the plant supervisor's proposal, the Eagle Division's role as a profit center, and the overall effectiveness of Birdy Company's performance reporting and evaluation approach.

In conclusion, unanticipated competition and shifting market dynamics present difficulties for the Eagle Division of the Birdy Company. The plant supervisor's suggestion to cut production time by doing away with some operationseven though doing so would mean malfunctioning switchesneeds to be carefully considered in terms of how it would affect yearly revenue. Finding the ideal selling price, sales volume, and manufacturing volume for the fourth quarter is also essential, given that the proposal has been approved.

It is important to carefully evaluate the Eagle Division's autonomy, commitment to company goals, cost control, and decision-making authority before designating it as a profit center. There are positive aspects of the company's performance reporting, appraisal, and control procedures, but there is also room for development. A more proactive market analysis, flexible budgeting, enhanced teamwork and communication, a strong strategic planning procedure, increased performance indicators, and an all-encompassing risk management plan are a few of these.

The Birdy Company should concentrate on strengthening its capacity to adjust to changes in the market, encouraging cooperation between divisions and the corporate headquarters, and improving its performance evaluation measures to offer a more comprehensive picture of divisional performance going forward. The organization will be in a better position to handle obstacles, seize opportunities, and guarantee the overall success of its multidivisional structure with this strategic strategy.