Assignment Questions for Harvard Cases

3. Hilton Manufacturing Company

In Exhibit 3 of the case, change the description for estimating variable portion of "Compensation" and use 5% of direct labor cost rather than 5% of direct labor and indirect labor cost as indicated in that Exhibit 3. Again, DO NOT USE 5% of DL and IDL costs. A product cost is itself a product of a cost accounting system. To use product cost information in decision making, a manager must understand the nature of the cost measurement system that has been used to estimate a product cost and be able to evaluate whether or not the product cost at hand is appropriate for the decision which is about to be made. A second objective is to provide practice in considering whether or not assumptions about cost behavior are critical to decisions and to expand the notion of contribution beyond the simple idea of price minus variable cost per unit. A third objective introduces the concept of breakeven analysis, not by focusing on the point where no profit is earned but rather as a tool to consider whether or not one of two price points might be preferred. Finally, the last assignment question invites you to consider factors that lead to profitability. You begin your analysis by focusing on two issues raised in the assigned questions. The first is whether the decision not to drop Product 103 as of January 1, 2004 was wise. In addition, you are asked to analyze what would have been the impact on profit for Hilton Manufacturing Company during the first six months of 2004 if the product had been dropped. The second assigned question asks you to consider whether or not the company should reduce the price of Product 101 from $9.41 to $8.64. The case introduces the notion that some costs will have to be adjusted for anticipated changes before this decision can be finalized.

The third