Hi,

Can you help me with my section 2 which the answer is unfinished as I'm not sure if it is right.

Also, section 2 needs to fit with the answer you've provided to me just now.

Thank you.

Answer: Section 3; Analysis Marge McPhee, general manager of the compressor manufacturing department of Catawba Industrial Company is considering proposal to manufacture new light weight compressor. The company is presently manufacturing standard compressors which are used partly in house and remains are sold in market to customers. Production manager is to decide whether to manufacture new light weight compressors or not? Will manufacturing of new light weight compressors will be profitable for company as it requires capital investment of $635,000 in total. If manufactured, what will be selling price per unit and what will be production per week? Present standard model is generating weekly profits of $37,800 and return on sales is 18% for week days other than Saturday and is 4.5% for Saturday. (Exhibit 2) On analyzing cost data given in exhibit 1 and Table 1 (in attached excel spreadsheet), we find profit per week of new light weight compressor at different price levels. It is apparent from calculations that price of $7,500 per compressor is generating highest profits per week of $26,333 and sales volume will be 17 compressors and per unit profit will be $1,549. Total profits per week are highest in all levels of price. Return on sales is 20.65%. But if price is fixed at $8,000 per unit, total profits per week will be $20,490 and sales volume will be 10 compressors and per unit profit will be $2,049 which is highest per unit in all levels of price. Section 4: Recommendation: From above analysis it is clear that company should manufacture new light weight compressors and if price is fixed $7,500 total profits per week will be highest and if price is fixed at $8,000 per unit profits will be highest. We should consider total profits and it is recommended that company should fix price of new light weight compressors at $7,500 each which will generate highest profits of $26,333 per week. Return on sales is 20.65% which is also higher than present standard model in any case. Answer to Questions: 1. Company is facing production problems with volume of production and although no where given in case study but might be feeling pressure to introduce new compressor to face competition. 2. Company has adopted traditional costing system and is charging overheads by a predetermined rate and in case of traditional costing cost estimation cannot be accurate. Under present costing system standard compressor's per unit cost is $8200 for manufactured up to Friday and $9,550 on manufactured on Saturday. Per unit profit on compressors manufactured up to Friday is $1,800 and for manufacturing on Saturday is $450. 3. Performance evaluation is based on profitability of department and this sometimes leads to under estimation of costs by person in charge. 4. Yes, as it will generate loss on the basis of present traditional costing. But cannot be said because it should be decided on basis of variable costing but no data provided for it. 5. Constraint is availability of labor as company is paying higher labor on Saturday and Sunday therefore production should be planned in such way that it is achieved by Monday to Friday. Direct labor hours are limited hence product giving higher contribution margin per unit should be preferred. 6. To achieve highest profits company should produce 24 standard compressors and 17 light weight compressors. Section 2: Problems and Issues (One paragraph) In this paragraph, you must identify (i) the problem(s) facing the company and (ii) the issues that could be causing the problem(s) the company is facing and how you can see this manifesting in the details of the case (i.e., why did you come to this conclusion?). You should provide a brief discussion of the problem and issues (i.e. how they relate?) but do not analyse. Remember, from the Huff and Weber, How to Prepare a Case guide, a problem is something fairly specific and reasonably well understood - even if its solution is not (e.g., profits keep falling even though we believe we are doing a good job). An issue is a more general thing - it also requires attention but needs to be better understood before specific solutions are considered (e.g., our costing system is reporting inaccurate costs, why?). You need to get an understanding of the problem and issues before you can diagnose the underlying cause and recommend potential solutions! In order to help you identify the problem(s) and issues, questions are provided for the case. Some questions will relate to this second section; others will relate to the analysis and the recommendations you should consider. It is up to you to work out how the questions should be addressed in your case. Note: regarding case questions provided, you should answer the questions, where possible, as a cohesive part of your submission and NOT as 'answers to questions'. These questions are designed to prompt your thinking and analysis; therefore your responses should be blended into the paragraphs as part of your statements, arguments or recommendations. Answering the questions as asked without following the case requirements will lead to poor results. (22 marks. Again, note: if all you have done is to reproduce the text of the case NO marks will be awarded) CATAWBA INDUSTRIAL COMPANY ANALYSIS This paper seeks to analyze the issues and problems in Catawba Industrial Company. From a keen analysis of the company's way of doing business there are two problems that could be identified. They are a bloated wage bill, non profitable production method and a poor costing method. The high number of direct labor employees was the main issue that caused the bloated wage bill problem. This is because the compressors had a workforce of 50 workers for its production. This means that each worker being legally entitled to hourly remuneration of 20 dollars cost the company. In the long run this is a problem because of the resulting losses on the operation units. The non profitable production method was brought about by the issue of a lack of prior planning. This is because the company set out to add extra products without doing a research first to determine whether the venture was worthy going into. The problem of a poor costing method was as a result of the issue of having poor projections. This is as a result of the calculation of costs forecast being not accurately and thoroughly determined. All these problems and issues were drawn to be the conclusive topics because they all boil down to the major reason of the company's existence-profit maximization. There is a relation among the three problems. For example a high wage bill means that the financial resources that would have instead been channeled to production equipment investments went to paying workers. This means that the company was at a loss in the long run because unlike investments, wage payouts do not add value to the company or its operations. Another relation of these problems comes to the costs estimation. When the cost estimation goes wrong, it means that the allocation using that assessment is going to be below par. This means that there are some departments of production that are most likely going to be slowed down because of poor resource allocation hence in the long ruin affect the optimum prosperity of the company. There are possible solutions that can be carried out to avert these issues and problems. For instance the problem of a bloated wage bill can be dealt with by looking at the quality of the workforce instead of the quantity. Investing in fewer more qualified staff is more beneficial than having a large workforce comprised of less experienced personnel. A more qualified workforce translates to having more work done for lesser in terms of wages and time. The issue and problem of a non profitable method of production cam be solved by having a clear market research carried out. This means that the company will have a solid knowledge of the best production method to adopt. This making of informed decisions will prevent long run operational losses because an analysis will help in determining the lesser costly method to adopt. The issue and problem of a poor costing method can possible be solved using updated cost forecasting software and methods. This translates to all the costs including the hidden modern costs being captured and reasonably dealt with or alternatives amicably sought by the company