FULL CASE:

TABLE OF CONTENTS

Contents

Introduction and Problem Definition ................................................................................................................. 3

Analysis ............................................................................................................................................................. 4

Recommendations ........................................................................................................................................... 6

Conclusion ........................................................................................................................................................ 7

End Matter ........................................................................................................................................................ 8

Introduction and Problem Definition

Summary of conversation with Michael Crawford, Plant Manager with Anwar Aluminum Works (AAW):

In mid-February 2013, Anwar Aluminum Works (AAW) is currently working on an operation to ensure that the clients delivery of products is being fulfilled. There are two new clients, Renfrew Automotive and Evers Manufacturing, who are requesting and offering a deal with AAW to have their orders processed. To maximize profits, a review from both deals will be assessed in the case report.

The Aluminum Industry:

In the market, the selling price can fluctuate by 20 to 25 per cent daily. The spot price determines the price of aluminum with supply and demand. Operations costs are affected from the usage of electricity when manufacturing aluminum by 20 to 40 per cent.

Anwar Aluminum Works:

In 2012, there is a total of 16 manufacturing facilities and 2,600 employees with revenues of US$1.36 billion and a profit of US$85 million. The goal of AAW is to reduce and eliminate any excess for its operations to remain competitive in the market. To meet this competitive range aspects, AAW must include the purchase of raw material at lower price, larger financial resources, and increase in technology efficiency. The performance of AAW recently, has been tremendously high particularly at the plant utilization sector.

Analysis

There are two main factors that AAW should consider that the operation of the business which are qualitative and quantitative affect resulting a case analysis as follows:

Renfrew Automotive vs Evers Manufacturing (Advantages)

Renfrew would pay the market price of $0.95 per pound plus a $0.75 spread per pound for aluminum. This alloy combination would contain 10% prime aluminum and 90% scrap aluminum, lowering the raw material cost.

Renfrew would pay AAW Windsor

the price of twice monthly Due to the common formulation of the alloy, AAW Windsor would need only a $2,000 investment in new molds.

Renfrew It lets to place orders without

the need for an advance payment. This basic production would also need only a 92 percent manufacturing press recovery, lowering raw material costs.

Renfrew always maintains an average

of 15 days worth of inventory of the

product, which means spending less

space to store the goods. There would be no extra maintenance expenditures.

Renfrew Automotive vs Evers Manufacturing (Disadvantages)

The projected manufacturing press recovery would be 80% due to product quality control; hence, 75,000 pounds would have to be cast every two months to extrude 60,000 net pounds. Evers would pick up the order monthly, and it was agreed to keep 30 days' worth of the order on hand at all times, increasing the expense of inventory management.

Renfrew, it would use specialized cast

moulds in the manufacturing process,

which would cost $80,000. It's possible that the amount collected will fluctuate by up to 50%.

There would be $20,000 spent

annually for replacement cast moulds

and maintenance costs on the

equipment. Additional labour expenditures of $2,500 per year were anticipated to be required.

The cost of raw material would be

greater than accepting Evers

Manufacturing since there is no

reduction on 50% prime material. Evers would benefit from AAW's net 45-day credit terms with consumers.

Contributed Margin:

As a part of projected manufacturing press recovery, because of product quality control,

the volume of product produced is more than the volume of product sold.

Return on Investments:

Evers Manufacturing (EM) has a ROI of 57.7% while Renfrew Manufacturing (RM) only has a ROI of 36%. Even though EM has a higher ROI, it is important to consider the long-term risk factors this may have on the business. From a long-term perspective, fixed cost, gain on investment, and cost of investment play a big factor in the overall choice of which order to fulfill first. Evers Manufacturing has a higher gain on investment of $1,240,000 compared to $1, 224,000 for Renfrew Automotive. Having a lower fixed cost of $7,000 and cost of investment of $786,130 allows the firm to budget their finance and focus on payment to suppliers to ensure the highest quality of product that AAW abides by. On the other hand, Renfrew Automotive is the opposite as to which fixed cost of $72,000 and cost of investment $900,000 are higher giving AAW less allowance for budgeting.

Apart from the Contribution Margin and the Return on Investment, certain other factors must be kept in mind. A period in which finished products are being held in inventory, because if the period were longer the costs would also increase. So, it is better to have a short period on holding the products. As a part of Quality Control, the projected percentage of manufacturing press recovery represents the cost of materials for products that are not sold, which is an extra Cost. Therefore, the lesser the percentage better it is for the company.

Payment conditions, in terms of the time taken to make the payment, should also be considered. Also, the rate of fluctuation of the volume of product picked up during the month. Represents two-fold impact issues. If the extra product is not picked up, represents holding costs in the inventory but at the same time, AAW must make sure a huge number of products are always available for the customers to buy.

Recommendations

Different between Alternations

Renfrew Automotive vs Evers Manufacturing

The quantitative information

Production Cost $1,530,000 $1,347,826Material $828,000 $779,130

Labour $0 $2,500

Total Production Cost $2,358,000 $2,129,456

Differential Cash Flow $228,544

From knowing the differential in cash flow of $228,544 of savings. The firm will have more allowance on seeing which order and client will benefit more from performing first. When managing 2,600 employees, it is important to consider the labour cost as it will cost to pay each working individual. Therefore, the best recommendation is to analyze both the inflows and outflows of the business as having cash is the overall success to a business entity firm.

Conclusion

After analysing both the qualitative and quantitative affects of both Renfrew Automotive and Evers Manufacturing. The order that should be processed first is Evers Manufacturing then Renfrew Automotive as AAW would benefit from this order first. To maintain the high level of performance with plant utilization, it is essential to keep in mind the financing charge relating to the firms decision. It is important to ensure that the proposed orders of the clients should be investigated long-term where it will be returned from a risk-free rate instead of focusing solely on the income that will be generated from the investment.

End Matter

Renfrew Automotive:

Unit Price $1.7 = ($0.95 + $0.75)

Total Volume Required 720,000 pounds

Revenue $1,224,000

Total Volume Produced 900,000 pounds = (720,000 pounds/0.80)

Variable Cost

(Prime 50% & Scrap Aluminum 50%) $828,000 = [450,000 * 0.95 + 450,000 * (0.95 0.06)]

Contributed Margin $396,000 = ($1,224,000 - $828,000)

Evers Manufacturing:

Unit Price $1.55 = ($0.95 + $0.6)

Total Volume Required 800,000 pounds

Revenue $1,240,000

Total Volume Produced 869,565 pounds = (800,000 pounds/0.92)

Variable Cost

(Prime 10% & Scrap Aluminum 90%) $779,130 = [86956.5 * 0.95 + 782,608.5 * (0.95 0.06)]

Contributed Margin $460,870 = ($1,240,000 - $779,130)

Renfrew Automotive:

Gain on Investment $1,224,000

Fixed Cost $72,000 = ($80,000 * 2/5) + ($20,000 * 2)

Cost of Investment $900,000 = ($828,000 + $72,000)

Return on Investment (ROI) 36%

Evers Manufacturing:

Gain on Investment $1,240,000

Fixed Cost $7,000 = [$2,000 + (2*2,500)]

Cost of Investment $786,130 = ($779,130 + $7,000)

Return on Investment (ROI) 57.7%

QUESTION:

GROUP MANAGEMENT REPORT Anwar Aluminum (30 marks)

Based on full case report on the Anwar Aluminum case, prepare a management report to your manager Greg Burnham, of Prestige Accounting. Follow the principles for management reports that we covered in Week 6.

Due: Thursday, November 11^th

See below for the marking rubric I will use in evaluating your group management report.

Group Management Report: Marking Rubric (15%)

	Excellent	Satisfactory	Needs work	Score
Content (out of 10)	Briefly summarizes key issues in the case. Excludes information the reader already knows. Applies relevant accounting principles correctly. Briefly lists recommendations. Includes necessary numbers in Appendix. (8-10)	Leaves out some important issues, or includes some unnecessary details. Minor issues with accounting treatments. (5-7)	No summary of the issues. Leaves out important issues. Significant errors in accounting. Missing recommendations. Missing key numbers needed to understand the report. (0-5)
Level (out of 10)	Level is appropriate for a business owner. Explains technical terms or accounting principles where necessary. (8-10)	Level slightly less sophisticated or slightly more technical than appropriate. (5-7)	Level is far too technical or too unsophisticated. (0-5)
Style, organization (out of 5)	Professional writing style. Follows required organization. Written clearly and strongly. Appropriate division into paragraphs, lists, tables, etc. Argument is organized logically. (4-5)	Strong writing style. Minor issues with organization. Too many detailed numbers in the body of the report. (3-4)	Writing is full of colloquialisms or awkward sentences. No division into paragraphs, lists, or tables. Lack of overall organization makes the argument unclear. (0-2)
Format	Proper memo format. (4-5)	Minor issues with format. (3-4)	No memo format, or major issues with the format. (0-2)