Williams Company Is an East Coast Producer of Electronic Furnace

question 46

Essay

Williams Company is an East Coast producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that Williams sells for $270. Six weeks after increasing production to supply the increased orders, the assistant controller notices some unusual unit cost data in the monthly report she is preparing. Prior and current month unit values are given below: Required:
(1) Suggest some possible causes for the decline in average total cost.
(2) Assume now the opposite change has occurred, namely, average total cost has risen $3.96 per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to explain these changes.

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Definitions:

Cost Center

A department or unit within an organization to which costs can be allocated, but that does not directly generate revenue.

Performance Evaluation

The systematic process of assessing and reviewing an employee’s job performance and productivity in relation to established criteria and objectives.

Excess Capacity

The situation in which a company can produce more goods or services than currently demanded due to available resources exceeding production requirements.

Outside Supplier

An external entity that provides goods or services to a business, often used in the context of manufacturing or production.