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Variable Costs and Fixed Production Assignment | Top Universities

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Andrew-Carter, Inc Andrew-Carter, Inc. (A-C), is a major Canadian producer and distributor of outdoor lighting fixtures. Its products are distributed throughout South and North America and have been in high demand for several years. The company operates three plants to manufacture fixtures and distribute them to five distribution centers (warehouses) During the present global slowdown, A-C has seen a major drop in demand for its products, largely because the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for A-C's products will remain depressed for the foreseeable future. A-C is considering closing one of its plants, as it is now operating with a forecast excess capacity of 34,000 units per week. The forecast weekly demands for the coming year are as follows: V TABLE 1 Costs per Week Andrew-Carler, Inc., Variable Costs and Fixed Production Fixed Cost per Week Variable Cost Operating Not Operating Plant (per unit) 1, regular time 1, overtime 2, regular time 2, overtime 3, regular time 3, overtime $2.80 3.52 278 $14,000 $6,000 12,000 5,000 3.48 2.72 3.42 15,000 7,500 Andrew-Carter, Ine., Distribution Costs per Unit Warehouse 1 Warehouse 2 Wareho Warehouse 4 Warehouse 5 TABLE 2 9,000 units 13,000 00 15,000 8,000 To Distribution Centers From Plants W2 W3 W4 W5 $50 $44 52 53 $.49 50 51 $.46 56 54 $.56 $7 35 Plant capacities, in units per week, are as follows: 40 56 Plant 1, regular time Plant, on overtime Plant 2, regular time Plant 2, on overtime Plant 3, regular time Plant 3, on overtime 27,000 units 7,000 20,000 5,000 25,000 6,000 overtime, and fixed when operating and shut down. Table 2 shows the distribution costs from each plant to each distribution center. Discussion Questions 1. Evaluate the various configurations of operating and closed plants that will meet weekly demand. Determine which configuration minimizes total costs. 2. Discuss the implications of closing a plant. If A-C shuts down any plants, its weekly costs will change, because fixed costs will be lower for a nonoperating plant. Table 1 shows production costs at each plant, both variable at the regular time and Source: Reprinted by permission of Professor Michael Ballot, University of the Pacific, Stockton, CA. Get Accounting Homework Help Today

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