Alarm Company Ltd manufactures alarm control panels. It has analyzed the fixed and variable costs relating to a panel: Business Operations in Engineering Assignment, UOB, UK

Learning Outcomes

• Explain the functions carried out by different engineering companies in the sectors in which they operate.
• Explain the organizational types of the three given engineering companies.
• Outline how information flows through an engineering company in relation to an engineering activity.
• Discuss how improvements in information flow could enhance the functional activities of an engineering company.
• Evaluate the information flow through an engineering company in relation to an engineering activity.

Task 1

Alarm Company Ltd manufactures alarm control panels. It has analyzed the fixed and variable costs relating to a panel supplied on a subcontract basis to companies that install fire alarm systems. The Fire Alarm Panel has the following data:

Overheads: £18,000
Fixed cost tooling: £2,000
Variable cost per unit: £18

The director of manufacturing requires you to produce an analysis for production volumes in the range of 100 to 1400 per month.

• Based on a selling price of £40, construct a break-even chart and use this to find the break-even volume.
• Investigate the effect of increasing the selling price to £45.
• It is decided to fix the production level at 1000 units a month with each unit selling for £45. A few weeks later Alarm Company Ltd receives an inquiry from a new customer. This is a DIY store and it wants to place a trial order of 500 units but at the nonnegotiable price of £35 per unit. Should the company accept the order given that the average cost per unit based on a 1000-unit monthly run is £38?

Task 2

A subcontractor produces fuel control valves for the aerospace industry. The tables below contain information about the cost of producing a particular valve.

The body of the valve is the only part that is machined. This is produced from a bought-in casting. The machining center currently in use is old and has stopped working and the manufacturing director is keen to replace it with a new one.

The finance director is not convinced that the machine should be replaced given the variable quantities of valves likely to be produced each year, particularly as the casting supplier has recently set up its own specialized machine shop. The supplier has tendered to supply the valve body fully finished at a guaranteed fixed price of £80 a unit.

Given that valve sales over the next 12 months may not be more than 600 what would be your recommendation:

• purchase the machining center and machine the body?
• buy in the body ready finished?
• Present a full costing analysis for the valve initially working on a figure of 1000 units per annum using a spreadsheet. Then carry out a ‘what if’ evaluation using production levels in the range of 200 to 1600 units p/a.

Answer

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