Recommending and justifying an appropriate cost analysis3
New income statement - plant-wide overhead rate6
New income statement - plant-wide overhead rate7
Appendix A: Income Statements supporting information10
Exhibit A: Sensitivity Analysis - unit and total contribution margins11
Exhibit B: Sensitivity Analysis - contribution margin and lower limits of production12
Exhibit C: Sensitivity analysis - contribution margin and upper limits of production13
Exhibit D: Sensitivity analysis - hours of production14
The objective of this report is to:
*Build upon the results and calculations from our previous Bayview assignment and to create a production plan for the company, identifying the optimum production mix;
*Perform sensitivity analysis as appropriate to support out production plans; and
*Produce analysis sufficient to justify our production plan.
Executive recommendation: Based on our assessment of costs and overheads, Group 4 recommends that Bayview manufacturing adopt the following production mix:
*Product A: 80,000 units
*Product B: 41,333 units
*Product C: 50,000 units
To determine our recommendations, the historical data provided was analysed using 'solver' as an optimizing tool.
By providing solver the operational constraints of the company, it generated the optimal product mix. This analysis is contained in an associated excel spreadsheet ('BayviewManufacturing_group4part2.xls'), however the key aspects of this document are attached as exhibits A, B, C & D. It is recommended that these exhibits be reviewed prior to review of our analysis, as they highlight the underlying assumptions adopted by Group 4.
Recommending and justifying an appropriate cost analysis
Our recommended levels of production are based upon the sensitivity analysis attached. We have concluded that contribution margins (and therefore profitability) is most sensitive to changes in demand for products A and C. This means that changes to the production numbers of these products impact the profitability of Bayview more...