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Brunswick

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Brunswick Plastics MSA 662-01
Marc Raphael
Barry University

Question1: Based on your interpretation of Exhibit 3, what is your estimate of the change in “PFMOH” cost if the factory were to run one extra batch of 150,000 milk crates?

Response:

Based on the interpretation of Exhibit 3, the most accurate relationship with Plant Fixed Manufacturing Overhead (PFMOH) is Direct Labor Hours (DLH). Michael Smith calculated that 3,472 scheduled machine hours would be need, 2,083 running hours.
Using the equation, PFMOH=4321+(2.85*DLH), and knowing that an operator must be present for each hour of scheduled machine hours (3,472), we can determine an increase of $14,216.20.

Question 2: What is your estimate of the incremental cost per unit for one batch of 150,000 milk crates?

Response:

The incremental cost per unit is $2.09 and is determined by adding the direct labor and direct materials per unit to the variable overhead.
Variable overhead is determined by multiplying the number of machine hours by variable overhead, which is stated in the case as $13 per machine hour of “running time,” and dividing the product by the number of units.

($13*2,083)/150,000=$0.18

$1.91+.18=2.09

Question 3: What does Exhibit 2 suggest would be a “normal” price for milk crates for an “average” job shop? What does this suggest about the $3.00 price which seems to prevail at the time of the case?

Response:

The case suggests the price for the crates for an average job shop is:
150,000*$3.00=$450,000*57%=$256,500

So the direct materials and direct labor is $256,500, $1.71 per unit for the average job shop. At $1.71 per unit, Brunswick’s bid price will be much higher at $3.00, which increases the chance that the bid will be rejected.

Question 4: What is the “strategically relevant” cost per unit for milk crates? (for purposes of deciding whether or

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