Case: Hilton Manufacturing Company

Essay by jrleggCollege, Undergraduate December 2006

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1. Mr. Hilton stated that he thought product 103 should be dropped. In reviewing the statement for the period of January 1, 2004 to June 30, 2004, this idea is not supported. Even though product 103 continued to be unprofitable in 2004, Hilton Manufacturing Company did realize a profit of $158,000 for the first half of the year by keeping it in production. By keeping product 103 in production, Hilton Manufacturing Company was able to spread out its fixed costs over three products instead of just two. Furthermore, dropping product 103 or any of the products for that matter would not have necessarily translated into increased sales for the other two products because the Hilton Manufacturing Company's market share remained consistent year over year.

2. Mr. Weston forecasted that if Hilton Manufacturing Company held its price on product 101 at $9.41 per cwt. during the first six months of 2005, its unit sales would be approximately 750,000 cwt.

Additionally, he felt that if the price was dropped to $8.64 per cwt., the sales volume would increase to 1,000,000 cwt. If all other expenses were billed at the same rate with the exception of a 5 percent increase in materials and supplies and a 7 percent increase in light and heat, greater profits should have been realized for product 101 at a price of $8.64 than the company would have seen for the product at a price of $9.41 per cwt.

3. At first glance, it looks as though product 101 is Hilton Manufacturing Company's most profitable product. But, in comparing the net profit margins for all three products in 2003 and the first half of 2004 (combined net profit margins: 101 = 2.04%, 102 = 5.11%, 103 = -12.11%), product 102 appears to be the most profitable product...