Repeated Analysis at Good Sales and Fair Sales

It can be determined after repeating the analysis with respect to Good sales and fair sales that, if the company sells its products at an average of 75,000units under good sales then the number of batches produced would be reduced to 15 batches at 5000 production runs. In like manner the number of batches could decrease, as the production runs increases, as it is illustrated in the Exhibit below.

Moreover, under fair sales at an average demand of 37,500 units, the number of batches would amount to 7.50 at 5000 production runs. In a likewise manner, the number of batches would decrease, as the production runs increases, as illustrated in the exhibit below. In additionto this, a production cost budget has also been calculated under the assumption that, the actual number of units demanded would be the number of units produced by the company with respect to Good and Fair sales, as illustrated in the Excel file attached.

Sales Forecast Good Sales Curtis Swann
Production Runs                       5,000      10,000      15,000      20,000      25,000      30,000
Sales Forecast Percentage Units produced
Good units sales 100%                   75,000
Total 100%                   75,000
Number of Batches Produced                     15.00           7.50           5.00           3.75           3.00           2.50

 

Sales Forecast Fair Sales Curtis Swann
Production Runs                       5,000      10,000      15,000      20,000      25,000      30,000
Sales Forecast Percentage Units produced
Average Unit Sales 100%                   37,500
Total 100%                   37,500
Number of Batches Produced                        7.50           3.75           2.50           1.88           1.50           1.25

 

Recommendation

After analyzing the case, it can be determined that, as the batch increases, the cost of production per batch decreases. Which could be attributed to same overhead incurred on different batch sizes. Furthermore, the embossing cost, which would remain steady between 5,000 and 7,500 at $2,485, 7500 and 10,000 at $2,898, 10,000 and 12,500 at $3,210respectively. Furthermore, the cost of embossing would remain constant from 12,500 batch size and onwards at $3,624. Therefore, it can be determined that, the company should produce large batch sizes, which would decrease its cost of production. Similarly, it could produce an economic batch quantity of 5,497, calculated under certain assumptions and using the data provided in the case, which are illustrated in the Excel exhibit.

No. of Batches Produced                     23.50         11.75           7.83           5.88           4.70           3.92

 

Moreover, it was given in the case that, the company would attain financing from bank, amounting to 50% of its held inventory and 80% of its account receivable. It was assumed that, the company used both factors to attain loan from the bank and its annual sales of 117,500 units at $2.00 per unit, sold to retailers, would be the amount of a/c receivable. Which would amount to $1,157,500 with a prime interest at the rate of 10.5% amounting to $121,538, which would make the total worth of the financing amount to $1,279,038.

Particulars   Annual
Sales Revenues   $            221,875
Inventory Cost   $        1,250,000
A/c Receivable for 3-years   $            665,625
   
Loan Borrowed   $        1,157,500
Prime rate   10.50%
Prime cost on loan   $            121,538
Total Loan Financed Worth   $        1,279,038

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