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Computer Graphics CG Is A Small Manufacturer of Electronic Pro

Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. It has succeeded through innovative product design and experienced management from its parent company. While analysts see potential for growth, they also see risks from new competitors and unproven technology. CG's main product is circuit board CB3668. It plans to sell 150,000 units in the coming year. Management is considering reengineering to reduce costs by increasing purchased parts and simplifying production.

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Amit Pandey
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121 views2 pages

Computer Graphics CG Is A Small Manufacturer of Electronic Pro

Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. It has succeeded through innovative product design and experienced management from its parent company. While analysts see potential for growth, they also see risks from new competitors and unproven technology. CG's main product is circuit board CB3668. It plans to sell 150,000 units in the coming year. Management is considering reengineering to reduce costs by increasing purchased parts and simplifying production.

Uploaded by

Amit Pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Solved: Computer Graphics CG is a small manufacturer of

electronic pro

Computer Graphics (CG) is a small manufacturer of electronic products for computers with
graphics capabilities. The company has succeeded by being very innovative in product design.
As a spin-off of a large electronics manufacturer (ElecTech), CG management has extensive
experience in both marketing and manufacturing in the electronics industry. A long list of equity
investors is betting that the firm will really take off because of the growth of specialized graphic
software and the increased demand for computers with enhanced graphics capability. A number
of market analysts say, however, that the market for the firm's products is somewhat risky, as it
is for many high-tech start-ups because of the number of new competitors entering the market,
and CG's unproven technology. CG's main product is a circuit board (CB3668) used in
computers with enhanced graphics capabilities. Prices vary depending on the terms of sale and
the size of the purchase; the average price for the CB3668 is $100. If the firm is able to take off,
it might be able to raise prices, but it also might have to reduce the price because of increased
competition. The firm expects to sell 150,000 units in the coming year, and sales are expected
to increase in the following years. The future for CG looks very bright indeed, but it is new and
has not developed a strong financial base. Cash flow management is a critical feature of the
firm's financial management, and top management must watch cash flow numbers closely. At
present, CG is manufacturing the CB3668 in a plant leased from ElecTech using some
equipment purchased from ElecTech. CG manufactures about 70 percent of the parts in this
circuit board. CG management is considering a significant reengineering project to significantly
change the plant and manufacturing process. The project's objective is to increase the number
of purchased parts (to about 55 percent) and to reduce the complexity of the manufacturing
process. This would also permit CG to remove some leased equipment and to sell some of the
most expensive equipment in the plant.
The per-unit manufacturing costs for 150,000 units of CB3668 follow:

General, selling, and administrative costs are $10 variable cost per unit and $1,250,000 fixed;
these costs are not expected to differ for either the current or the proposed manufacturing plan.

Required
1. Compute the contribution margin and breakeven in units for CB3668, both before and after
the proposed reengineering project. Assume all setup costs are included in fixed overhead.
2. Determine the number of sales units at which CG would be indifferent as to the current
manufacturing plan or the proposed plan.
3. Explain briefly (a) what CG's strategy is (b) what you think it should be and (c) why.
4. Should CG undertake the proposed reengineering plan? Using a spreadsheet, support your
answer with sensitivity analysis and a discussion of short-term and long-termconsiderations.

ANSWER

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