CASE: Merton Truck Company. Quantitative Techniques- II Assignment: 1. Section: F Group number 3. Submitted To: Prof. Bhuvanesh Pareek Submitted By. 12 Dec Free Essay: EMBA MERTON TRUCK COMPANY CASE SOLUTION HARSHID DESAI AMRUT MODY SCHOOL OF MANAGEMEMNT. View Notes – Merton Truck Case Report from FINANCE at Xiamen University. Case Solution Merton Truck Company Submitted by: Group 5(Section G).
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In the current analysis, it is assumed that Model Assembly cannot be used for Modela logical assumptionsince Merton specifies the department where Model will be made. Therefore, fixed overhead was not considered until the end of each evaluation. Technology could also play an important role in reducing the time and costs needed to produce the vehicles, so it is important that Merton maintain a watchful eye on new production methods and machinery.
The first step was to determine the capacity of producing only Modelwhich is as follows based on Table A: The Martinez Company has decided to introduce a new product and would like to evaluate the costs of manufacturing through capital intensive and labor intensive manufacturing methods csae determine which ….
The values for contribution margin CM are given as well as the portion of departmental capacity required to produce As the Model and life cycle continues, the company should see a reduction in time and costs associated ith every aspect of the truck manufacturing process as a result of learning curves. Mark Ferguson, President From: Exhibit 2 shows the graph, including the values in USD obtained when the extreme points are plugged into the equation.
Therefore, Merton should not assemble engines on overtime under these conditions.
Merton Truck case study
A limited time offer! Renting capacity from an outside supplier was one alternative, but a similar option would be to simply outsource at a rate less than the shadow prices discussed earlier.
Get custom essay sample written according to your requirements Urgent 3h delivery guaranteed Hire Writer. Without an increase in sales, discontinuing Model would only result in increasing the fixed costs for Model without increasing the revenue. We will write a custom essay sample on Merton Truck Co specifically for you. This is a phenomenon known as the death spiral, when the discontinuation of a seemingly unprofitable product causes soluion profitable products to become unprofitable.
Merton Truck Co
If Merton can rent capacity for less than the shadow trukc for either department, it should. M in monthly fixed overhead exists regardless of the product mix and does not need to be allocated on a per unit basis to determine overall profit or financial performance.
However, since the bottleneck is the Model Assembly, additional capacity remains to produce Model units: If demand is expected to continue, Merton should also evaluate the ROI of investing in capital and permanently increasing capacity as an alternative to renting or outsourcing capacity. Decision Making Across the Organization Pages: Mertom value of linear programming techniques in evaluating possible solutions is clear, particularly in that it quickly provides clues of other options to consider such as adding additional Engine Assembly Capacity.
It can be reasonably estimated that labor hours per vehicle will be reduced due to learning curves which result from staff experience and familiarity with the production processand that Merton will therefore be able to increase the total volume of vehicles produced.
In order to evaluate any alternative, we need to compare to current profit. InMerton Truck Company was searching for ways to increase profits and ultimately its poor financial performance. Capacity Options Given the capacity limitations seen thus far, it is a fair conclusion that increasing capacity may present an opportunity.
Based on the capacity information, it was determined that Model would require 0. So far an improved product mix has not been identified, so linear programming was used to identify the production mix that would maximize profits using the following objective function: However, the president did not consider that fixed overhead OH was being allocated across all units, and the discontinuation of Model would increase the overhead applied to Model Since it was the specific request of the president, the impact of tfuck Model was evaluated.
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The extreme points corresponding to the non-negativity, Model Assembly, and Model Assembly constraints were easy to identify, and the rest was determined by simultaneously solving the equations of intersecting lines. Many of the values were in accordance with expectations as they corresponded to the earlier analyses.
Merton should continue to use that extra capacity to produce Model to generate additional revenue and help absorb costs.