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6 Cards in this Set

  • Front
  • Back
three products
large overhead costs
three competitors-each focuses on one product

– Narnia‘s cost allocation is fine as long as only a total company profit figure is needed
– But to find the optimal product mix, careful allocation of overhead costs to products becomes important
• Giberson is a skilled glassblower
• Works every day
• Products are selling reasonably well
• BUT: Business is on the verge of bankruptcy
• Why? How can we safe the business?

• Giberson needs to understand that he can produce whatever products he wants, without his total costs changing much
• He does not need to be concerned about the cost of each individual product
• Cost allocation not required to improve decision making
• He needs to charge 70 cents per minute of his time and needs to be productive for 30 hours a week
• He should spend as much time as possible as hot time and hire additional part time labor to do the 18 part-finishing
• ETO tests electronic components
• No direct material costs
• Testing requires increasingly more expensive and less labor intensive equipment
– Siemens produces two types of motors
• Standard motors
• Customized motors

• There might be interdependencies between two seemingly independent markets
• Try to figure out how competition in one market affects the game in another market
• It might be worthwhile to voluntarily sacrifice business in one market, in order to protect business in another market
• Synopsis:
• Young biotechnology company
• Produces equipment and cartridges that perform DNA analysis
• Fluctuating margins confuse the board members and analysts

Ask the following questions:
• Do we have excess capacity?
• Why do we have excess capacity?
• Does it make economic sense to assign the cost of unused capacity to current products?
• In the Anagene case the answer is no
• Anagene is a start-up firm and bought the excess capacity for its future use
• Current production is not the cause for excess capacity
• Current customers should not pay for the investment 21 in excess capacity
– The role of capacity
– Action plan to improve profitability