Lipman Bottle Company
Variable Cost per Thousand Table 1 *hours per thousand bottles= setup time/ median order size; total time per thousand= hours per thousand bottles + run time per thousand; operating cost per thousand= total time per thousand * variable cost per machine-hour; direct cost to manufacture= cost per thousand passes+ operating cost per thousand; total direct cost per thousand= shipping + scrap + direct cost to manufacture As shown in the Table 1, it is a part of question1.
In the textbook, it has illustrated the 10 month income statement, containing variable cost per machine per hour and cost per thousand passes, which are used for the calculations. For the question 1, it requires to compute two order quantity ranges- 5000- 9999 and 100000- 249999, using the median of the order sizes for simplification. Setup time for a job is a factor of variable cost, so in the table, it has setup time, and uses it to get hours per thousand bottles.
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The formula is demonstrated below the Table 1.
The setup time and run time per thousand adding together can get the total time of working per thousand, which means that when the company operates machines, it will spend cost, and should be included in variable. As a result, total time increases variable cost per machine per hour. Another thing should be mentioned here is the automatic and semiautomatic machine. The question demands automatic feature, but Lipman Company only has eight semiautomatic machines; the run time is 1. 0 hour per bottle of one-separation job and size 0-1 ounce.
The run time is different for different sizes. Moreover, one-separation and two-separation jobs are also different. The scrap and shipping to New York- New Jersey Area are decided by diverse sizes. In addition, cost per thousand passes, scrap, and shipping are all parts of variable cost. So, variable cost comprehends operating cost per thousand, cost per thousand passes, scrap, and shipping. All the answers of question 1 will be shown in the Exhibit 1. Price for Albany According to the description of the Lipman Bottle Company, Mr.
Lipman does not agree with Exhibit 2, which is printing prices charged by industry leaders (price per thousand bottles). As a result, a new price list is required. The Lipman Bottle Company case clarifies the use of full cost information to set printing prices. The company is a distributor which also prints labels on bottles. It has $1 million capacity. Lipman had far more printing capacity than needed to print bottles that the firm sold. Consequently, Mr. Lipman’s goal is to earn 30 percent margin. Table 2 *price= variable cost * (1. 0+30%)
In the Table 2, it also not explains the whole answer, which will be shown in Exhibit 2. The price equals to variable cost and 30 percent of variable cost. The price is mainly influences by bottle size, quantity, and separations. The first question has already found out the variable cost, which comprises the three factors. The price is determined by variable cost. The 30 percent margin also should be calculated based on variable cost. Recommendations for New York- New Jersey The suggestion for products sold in New York- New Jersey should also be considered the price.
All decisions making are according to price list. The way to get the price of New York- New Jersey is similar to the way of Albany. Table 3 Compare with the six productions, the two-separation rounds and two-separation ovals can earn more profit than others. At the same bottle size, two-separation rounds have the highest price. And the price will go up with the bottle size increasing. The same situation is also accurate for the two-separation ovals. That is to say, 17-32 ounce bottle size is the best choice.
For the order quantity, the company prefers the 100000-249999. But, based on the income statement and the global economy, if there is only one company, it is obviously two products. However, there is more the one competitor, although they are not as large as the Lipman Company, they still can have threat. Consequently, 5000-9999 is a more realistic target. On the other hand, the shipping will change by how the productions transport to New York- New Jersey. They can use air or other methods. Exhibit 1 Exhibit 2