Catawba Case Essay

1268 Words Nov 8th, 2015 6 Pages
Harvard Business School

9-191-053

rP os t

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
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The remaining units were sold on the open market through industrial distributors to meet whatever demand there might be for this common product. The 50 direct labor men and women averaged $20 per hour in wages and benefits during the normal week. They received time-and-onehalf on Saturday and double-time on Sunday. The plant was closed on Sunday because the higher labor costs resulted in an operating loss for each unit produced. See Exhibit 2 for the standard model compressor costs.

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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

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