Managerial Accounting

Hanson Manufacturing
Company - Case Study

Section 4 Group 2,

FT NUMBER STUDENT NAME

FT184043 MOHAN GEORGE
FT184052 PAULSON KOODALY
FT184069 RAJA RAJSHEKHAR
FT184057 PRALAV AGRAWAL
FT184075 SAI SRINIVASAKALYAN A
FT184110 YOGESH BALWANI
FT184004 ABHISHEK PALIWAL
Question 1- If the company had dropped Product 103 as of
January 1, 1974, what effect would that action have had
on $160000 profit for the first 6 months of 1974?

Foregone revenue if product 103 is 2710

removed
Compensation Insurance 35
Direct Labour 698
Power 31
Materials 492
Suppliers 36
Repairs 10
Foregone Contribution Margin 1408
Profit with Product 103 160
Loss without Product 103 1248

Due to the loss made by removing Product 103 from the product line, it is
advised to retain Product 103

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 Question 2- In January 1975, should the company have
reduced the price of product from $4.9 to $4.5?

Calculating effect on Total Contribution

Step 1 – Establish Unit Cost of 101

Compensation Insurance 0.06063

Direct Labour 1.2126
Power 0.021
Materials 0.68115
Supplies 0.04655
Repairs 0.0166
Total Unit Variable Cost of 101 2.03853

Step 2 - Compare Total Contribution of Alternatives

Detail Hold Price Drop Price

Price 4.90 4.50
Discount (1.08%) 0.05292 0.0486
Net Price 4.84708 4.4514
Variable cost 2.03853 2.03853
Unit Contribution Margin 2.80855 2.41287
Expected Volume 750000 1000000
Total Contribution 2106412.5 2412870

Since the new price gives a better contribution margin, the company should
go ahead with the new discounted price.

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Question 3- What is Hanson’s most profitable product?

Detail Product 101 Product 102 Product 103

Compensation 0.06063 0.05922 0.06965
Insurance
Direct Labour 1.2126 1.1844 1.393
Power 0.021 0.0484 0.061
Materials 0.717 0.9152 0.9824
Supplies 0.049 0.0924 0.071
Repairs 0.0166 0.029 0.0206
Total unit variable 2.07683 2.32862 2.59765
cost
Unit sales price 4.847 5.0456 5.4054
Unit contribution 2.77017 2.71698 2.80775
margin

From the above figures, the most profitable product is Product 103.

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Question 4- What appears to have caused the return to
profitable operations in the first 6 months of 1974?

 Focused short term decision making by the new GM Wessiling.

 Constant Monthly monitoring of Product wise Cost statements by
Wessiling. He had asked the accounting department to prepare monthly
statements from the analytical profit and loss statement for 1973 and he
used these statements as the basis of making minor marketing and
production changes
 Focus on small incremental changes. Eventually the monthly statements
from the first half of 1974 showed that it was a successful product

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