The strands are then hardened using cold air and then passed through the draw twister which reduces the diameter of the strands making them resistance to break. The strands are finally packed by hand in a special container.
The problem faced by the firm include the breakdown of the draw twisting machine that can only be allocated 1,000 hours and this means that it can only produce only a third of its capacity, the other problem is that the competitor need to be informed about the hire of the spinning machine as soon as possible. The other problem is that there is need to allocate more spinning hours to denier 44/10sd due to its increasing demand. Finally the marketing department fore see an increase in the price for denier 84/21fd by 25%
The industry seem to have idle capacity as indicated by the possibility of hiring a spinning machine, the price of the products they produce also seem to fluctuate by a large margin especially the denier 15/1g. The industry is a perfect competitive market in that prices are determined by demand and supply this is evident in the memorandum by the assistance manager to increase production of 44/10sd due to increasing demand for the product.
The company makes decisions at the beginni...
If we are to compare the two deniers the 15/1g denier is more profitable than the 84/21fd denier, this can be mathematically proven by the Aprils production as follows
Production in kgs 4,200 9,600
Variable cost 88 74
Total cost 369600 710400
Market price 178 124
Total revenue 747600 1,190400
Profit 378000 480000
Profit per kg 90 50
Possible Decision Alternatives:
The company should hire the excess capacity for the spinning stage, this will ensure that the right quantities of its products are produced, and there should also be an increase in the production of 84/21fd denier whose price is expected to rise and also in the production of the denier 44/10sd.
Evaluation of alternatives:
If the company produces more of denier 84/21 which is less profitable, it may not maximize its profits, the reason being this denier spends more time in the draw twisting machine, this is seen where only 12kgs of the 84/21fd are produced per hour in the draw twisting machine as compared to 15 kgs of 15/1g produced per hour, therefore by producing more of the 84/21fd will minimize profits in that this denier is less