This case study assesses the variable costs of making products and methods of identifying costs that could be reduced.
The case study examines how apportioning maintenance and consumables to either fixed costs or variable costs can affect the break-even point.
All companies aiming to make a profit must know how much it costs to make their products so that they can sell their products at a high enough price to cover their costs and make a surplus or profit on each item sold. The income or revenue generated by the company must cover the cost of producing each unit, but it must also recover the money which was spent on research, design, development, prototypes, market testing, packaging, marketing and launch.
Aimed at students on operations management courses, the reader is guided through six technical questions concerned with calculating the break-even point for each engine, as well as an analysis of the internal costs of quality, such as buying extra components or sending out replacement bags. The authors also tackle issues such as managing complaints and ensuring that customers are satisfied.
This real-life case study with its detailed worked examples is an indispensable learning aid. Readers are able to examine how a successful business tries to establish the variable costs of making products and identifies costs that might be reduced.
Mike Simpson is a Senior Lecturer in Operations Management on the MBA programme and Operations Management and Supply Chain Management on the MSc programmes at The University of Sheffield Management School.
Dr Andrea Genovese is a Lecturer in Logistics and Supply Chain Management at the Management School of the University of Sheffield. He is also a member of the Logistics and Supply Chain Management (LSCM) Research Centre and Centre for Environment Energy and Sustainability (CEES).