Precision Worldwide Essay examples
Case Study Background: Precision Worldwide, Inc. (PWI) manufactures industrial machines and equipment for sale in numerous countries. Repair and replacement parts account for a substantial part of the company’s business. The replacement part in question, steel rings, occur in the machines manufactured only in PWI’s Frankfurt Germany plant, but can also be used on some competitor’s machines. The steel ring manufactured by PWI has an average normal life of about 2 months. Machines require between 2 and 6 rings to operate. Individual rings are replaced as they wear out. Over the years, competition had increased and now a competitor company, the French firm Henri Poulenc, has entered the market with a …show more content…
3) Ramifications of alienating customers that learn later that a superior plastic ring in existence was not offered to them by PWI.
4) Not entering the plastic ring market soon enough or at all could lose existing or potential customers.
5) The effect of plastic ring versus steel ring lifespan.
Table 1: To compare cost of Plastic ring and Steel ring, we need to eliminate the costs that are same for both and also that does not contribute to manufacturing. In this case, the administrative overhead is non manufacturing cost and also we will not be able to trace it steel rings or plastic rings, if both are manufactured. Quoting from Frank, in his book , “when we are choosing between two policies under both of which the same overhead outlay will have to be met, that overhead outlay is not part of the cost specifically traceable to either polity.”
Departmental overhead cost is 80% or $.8 per Direct Labor cost. Relevant cost from Table A of case study supplied by cost accounting department of PWI, with administrative overhead cost removed and departmental overhead cost reduced. Title | 100 Plastic Rings | 100 Steel Rings | Material | 17.65 | 321.90 | Direct Labor | 65.50 | 196.50 | Overhead* Departmental (80% of Direct Labor) | 52.4 | 157.2 | Total | 135.55 | 675.60 |
Using the above table, for incremental analysis purpose, Unit cost of Plastic