Hilton Manufacturing Case

Case questions

1. If the company had abandoned product 103 on January 1, 1991, what effect would this
action have had on profit?

We have compared scenario 1, which is the income statement as of June 1991 with model 103
and the same income statement as of June 1991 without model 103.

Given that the company has a series of fixed expenses that are independent of the number of
units produced, these (costs) will continue to exist regardless of the existence or not of model
103 (this will occur in the short term. In the medium and long term, society can redirect
resources or modify them to adapt to new needs). This means that you will only have savings
in variable production costs, with the rest of the costs assigned to models 101 and 102 based
on some criterion for the distribution of resources between the different activities.

At this point, the results I get are:

June 1991 with model 103 158 profit

June 1991 without model 103 (2,736) loss

The Excel (translated to PDF) shows which expenses I have considered as fixed and therefore
remain in the company even without producing form 103 and which ones it has been possible
to eliminate.

2. In January 1992, should the company reduce the price of product 101 from 9.41 to
8.64 USD/Kg?

In a similar way we will analyze two scenarios, one in June 1992 maintaining the sales price at
9.41 USD/Kg and another modifying it to 8.64 USD/Kg.

To estimate sales, the case statement has been used, which says that if we maintain the price
at 9.41, 750,000 Kg can be sold, while if we lower it to 8.64 USD/KG, the sale would reach
1,000 ,000 Kg.

Furthermore, the case gives us three variations in standard costs with respect to those of the
preceding fiscal year 1991. These are a 7% reduction in Lighting and Heating and a 5%
reduction in Materials and Supplies.

In this way the results that have come out are the following:

As of June 1992, maintaining price (201) Hilton Total Loss

As of June 1992, reducing the price (806) total losses at Hilton.

Thus, barring error or omission, it seems less burdensome for society to maintain prices even if
this means reducing the Kg of sale.
 3. What product would you be interested in trying to place?

It would be interesting to try to increase the production and sales capacity of the 102 model to
reduce (or eliminate) losses and thus reach the dead end of this model. To do this, standard
costs should be reduced as production capacity increases (as long as the production capacity of
said model is not exceeded).

4. What could be the reasons why the company once again made profits during the first
half of 1991?
I will have to review this topic, since I am not getting benefits...