Joshua Sandoval

ACC 251
Anderson
20 January, 2018

Bridgeton Case Study

#2.
1988 1989 1990
Total Overhead 109890 78157 79393
Direct Labor 25294 13537 14102
Overhead Rate 434% 577% 563%

The changes since 1987 concerning the overhead allocation rates are very significant when
looking at the years after as a whole. The factor that can most be attributed to the change is
the decision to outsource mufflers and oil pans rather than to make in house.

#3.
Product 1 Product 2
Expected Selling Price 62 54
Standard Material Cost 16 27
Standard Labor Cost 6 3
Gross Margin / % of Selling $40 / 64.5% $24 / 44.4%
Price

#5
No additional products dropped
1991 Model Year Sales Direct Materials Direct Labor
Budget
Fuel Tanks $87,712 $17,675 $4783
Manifolds 93,120 35,725 6,540
Doors 52,681 17,414 3,102
Muffler/ Exhaust 0 0 0
Oil Pans 0 0 0
Projected Total $233,513 $76,114 $14,425
*Projections based off growth experienced between model years 1989 and 1990. Note
that manifold projections have remained the same based off the assumptions presented in the
question.
Manifold product line dropped
1991 Model Year Sales Direct Materials Direct Labor
Budget
Fuel Tanks $88,631 $17,591 $4,792
Manifolds 0 0 0
Doors 52,132 19,729 3,084
Muffler/ Exhaust 0 0 0
Oil Pans 0 0 0
Projected Total $140,763 $37,320 $7,876
*Projections based off growth experienced between model years 1988 and 1989. 1989
marked the year in which both the muffler/exhaust and oil pan product lines were discontinued.

#7
“Economies of Scale” are obtained by when a company is grown to an extent where their fixed
costs are spread out through higher production thus leading to a lower cost per unit.
Companies that want to grow beyond the minimum efficient scale may be looking at cornering
the market in their given industry. There are some industries that are more susceptible to being
dominated by a few companies and one of those companies could look into maximizing their
efficiency. Lastly when firms try to raise prices to compensate for excess capacity then that
tends to be the wrong approach. It comes down simply to elasticity as consumers will pay only
a certain amount and no more as the price outweighs their need.