Mile High Cycle - Bob Moyer’s Company
Autor: Juan Del Hoyo • February 23, 2016 • Case Study • 397 Words (2 Pages) • 1,560 Views
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Bob Moyer’s company, Mile High Cycles, outperformed its expected sales numbers by 800 units this year, selling 10,800 bikes instead of the expected 10,000. By doing so though, the company also spend more than expected. The company had expected a $1,084.31 cost per bike when selling 10,800 bikes. Instead the real cost per bike was $1,111.93 (Appendix Table 2). A financial analysis of the variances provides useful insight into what may have been the cause for such a price increase.
By calculating the flexible expected cost, and comparing it to the actual cost, the variance was calculated. From the data we can see that the frame cost is 6.67 percent higher than the expected value. This caused a negative variance of $64,800, even though the process was more cost efficient at producing frames. The decrease in labor hours, caused by the same efficiency increase seen in the frame assembly department positively influences the variance. In order to decrease the negative variance caused by the high material costs, the company should consider choosing a different material, such as a cheaper metal alloy, for their frame. Futures can be used in order to achieve the desired $30 a pound of steel and save money.
On the other hand, rework parts accounts for a $70,000 variance, or 23 percent. When a part is damaged during the wheel mounting process, or the final assembly, it has to be replaced. These replacements become very costly in the long run. To reduce these costs some measurements such as more precise machines or technical training should be considered.
Bob keeps an inventory of spare parts in order to replace any parts damaged during assembly or shipping. The extra inventory is costing Miles High Cycles $183,600 more than first calculated. This variance accounts for 62 percent of the extra cost. The parts replacements happen quite infrequently, meaning that such a big inventory is not necessary. It is highly recommended that this inventory will be reduced to its minimum in order to save costs.
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