Catawba Case Essay
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Rev. June 28, 1994
Catawba Industrial Company
op yo Marge McPhee, general manager of the compressor manufacturing department of Catawba
Industrial Company, quickly spotted the reports that she had been waiting for in the pile of mail that had accumulated during her trip to a West Coast industrial equipment trade show. A sales forecast and a cost tabulation for a proposed new, light-weight compressor provided her with the information she needed to ascertain whether or not to introduce it, what volume to produce, and what price to charge. Catawba Industrial Company, located west of Charlotte, North Carolina, was a major supplier of automatic industrial paint systems (used …show more content…
Because of its design, the new compressor could be manufactured on Catawba’s new numerical control machinery instead of the older equipment used to make the standard unit. As a result, each unit required only 62.5 hours of direct labor as compared to the 100 hours for the standard model. The cost savings in labor and materials were partly offset by the higher depreciation charges resulting from the use of more expensive machinery. The company had added certain features to the machinery center to accommodate the manufacturing process for the new compressor.
The extra hardware and hoists already installed had cost $417,000. Additional jigs, sensors, and software were expected to add another $218,000 to this total. Both these amounts had been taken into account in calculating the