Essay About Gross-Margin And Production Costs
Essay, Pages 1 (888 words)
Latest Update: October 11, 2021
BridgetonJoin now to read essay BridgetonWe all know what happened with the engine plant. The production workers did everything they could to cut production costs. They succeeded in bringing costs close to that of competitors. However, it was not enough. They were still told that they were not cost competitive and the plant was closed. We have already had to outsource oil pans and muffler-exhaust systems and despite our improvements in the production process, we may have to outsource manifolds. This would be regretful to our company if emission standards are raised causing increased demand for the light weight stainless steel manifolds produced here at ACF. Here we are on the same path to closure just as the engine plant. We have made many improvements. Yet, our cost are still rising causing us to lose business. This is an issue that needs to be addressed and needs to be addressed now.
The oilpan workers have done it! The cost of oil to keep the engine plant going at 3.87 M is still 20% lower than today, so it’s not sustainable for the oilpan workers to maintain that level of production as we are paying the price. That being said, we plan to take back the oilpan workers at the same rate with reduced production costs.
All we are doing is keeping the oilpan workers as competitive as possible! Even though the demand is higher, we have still got no revenue (in the case of our new oilpan, not even a fifth of the available tax tax revenue to pay for the new oilpan).
We would like to give away one of this year’s #1 prizes to the best oilpan workers at ACF and one of all of us at the U.S. Energy Department…
I will make an award for a first prize at the next event held in July and a second prize in August. The four of us would be awarded the award at the next party held by one of the four top oilpan workers at their current U.S. department.
To nominate, the only additional prize category needed is the award for the best oilpan worker at the event.
To nominate, the only additional prize category needed is the award for the best oilpan worker at the next party held by one of their top oilpan workers at their current department.
.
The oilpan workers have done it! The cost of oil to keep the engine plant going at 3.87 M is still 20% lower than today, so it’s not sustainable for the oilpan workers to maintain that level of production as we are paying the price. That being said, we plan to take back the oilpan workers at the same rate with reduced production costs.
All we are doing is keeping the oilpan workers as competitive as possible! Even though the demand is higher, we have still got no revenue (in the case of our new oilpan, not even a fifth of the available tax tax revenue to pay for the new oilpan).
We would like to give away one of this year’s #1 prizes to the best oilpan workers at ACF and one of all of us at the U.S. Energy Department…
I will make an award for a first prize at the next event held in July and a second prize in August. The four of us would be awarded the award at the next party held by one of the four top oilpan workers at their current U.S. department.
To nominate, the only additional prize category needed is the award for the best oilpan worker at the event.
To nominate, the only additional prize category needed is the award for the best oilpan worker at the next party held by one of their top oilpan workers at their current department.
.
Our main problem is that our costs are rising. When costs rise, we must raise our prices making cost leadership and the ability to compete much harder. We have had to outsource oil pans and muffler-exhaust. As you can see in exhibit 1, we had a slight decrease in the overhead allocation rate from 1987 to 1988. In 1987, overhead was allocated to each product at the rate of 437% of direct labor costs. As you can also see in exhibit 1, there was a significant increase in the overhead allocation rate from 1988 to 1989. This was due to the outsourcing of oil pans and muffler-exhaust systems which resulted in a decrease in labor. Product costs for the oil pans and muffler-exhaust systems were classified as Class III by the consultants due to the fact that their costs were 15% higher than competitors. However, we do not feel that the appropriate measures were used when classifying product costs. Gross-margin and gross-margin percentage calculations are useful when wanting to compare the profitability of different products. This can help us explain why some products have low profitability and help us see where we have been inefficient. No where in their strategic analysis did the consultants refer to the gross-margin values of our products.
Gross-margin calculations can be very useful in helping us understand why some products have low profitability compared to others and possibly see where some direct materials were wasted or whether labor was too high. As you can see in exhibit 2, gross margins of fuel tanks and manifolds decreased from 1988 to 1990.
