In: Accounting
Hot & Cold and Caldo Freddo are two European manufacturers of home appliances that have merged. Hot & Cold has plants in France, Germany, and Finland, where Caldo Freddo has plants in the United Kingdom and Italy. The European market is divided into four regions: North, East, West, and South. Plant capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand (millions of units), and variable production and shipping costs (euros per unit) are listed in the following table.
Variable Production and Shipping Costs |
|||||||
North |
East |
South |
West |
Capacity |
Annual Fixed Cost |
||
Hot & Cold |
France |
100 |
110 |
105 |
100 |
50 |
1000 |
Germany |
95 |
105 |
110 |
105 |
50 |
1000 |
|
Finland |
90 |
100 |
115 |
110 |
40 |
850 |
|
Demand are in million units per year |
|||||||
Demand |
30 |
20 |
20 |
35 |
|||
Variable Production and Shipping Costs |
|||||||
North |
East |
South |
West |
Capacity |
Annual Fixed Cost |
||
Caldo Freddo |
U.K. |
105 |
120 |
110 |
90 |
50 |
1000 |
Italy |
110 |
105 |
90 |
115 |
60 |
1150 |
|
Demand are in million units per year |
|||||||
Demand |
15 |
20 |
30 |
20 |
Each appliance sells for an average price of 300 euros. All plants are currently treated as profit centers, and the company pays taxes separately for each plant. Tax rates in the various countries are as follows: France, 0.25; Germany, 0.25; Finland, 0.3; UK 0.2; Italy, 0.35.
Hot & Cold Company |
||||||||
France 50 units capacity |
North |
East |
South |
West |
||||
Demand |
30 |
20 |
20 |
35 |
||||
Variable cost pu |
100 |
110 |
105 |
100 |
||||
Sales |
300 pu |
9000 |
6000 |
6000 |
10500 |
|||
Variable cost |
-3000 |
-2200 |
-2100 |
-3500 |
||||
Contribution |
6000 |
3800 |
3900 |
7000 |
||||
Contribution pu |
200 |
190 |
195 |
200 |
||||
Preference |
1 |
3 |
2 |
1 |
||||
Units |
Contribution pu |
Total Contribution |
||||||
West |
35 |
200 |
7000 |
|||||
North |
15 B.F |
200 |
3000 |
|||||
10000 |
||||||||
Less Fixed Cost |
-1000 |
|||||||
Profit |
9000 |
|||||||
Germany 50 units capacity |
North |
East |
South |
West |
||||
Demand |
30 |
20 |
20 |
35 |
||||
Variable cost pu |
95 |
105 |
110 |
105 |
||||
Sales |
300 pu |
9000 |
6000 |
6000 |
10500 |
|||
Variable cost |
-2850 |
-2100 |
-2200 |
-3675 |
||||
Contribution |
6150 |
3900 |
3800 |
6825 |
||||
Contribution pu |
205 |
195 |
190 |
195 |
||||
Preference |
1 |
2 |
3 |
2 |
||||
Units |
Contribution pu |
Total Contribution |
||||||
North |
30 |
205 |
6150 |
|||||
East |
20 |
195 |
3900 |
|||||
10050 |
||||||||
Less Fixed Cost |
-1000 |
|||||||
Profit |
9050 |
|||||||
Finland 40 units capacity |
North |
East |
South |
West |
||||
Demand |
30 |
20 |
20 |
35 |
||||
Variable cost pu |
90 |
100 |
115 |
110 |
||||
Sales |
300 pu |
9000 |
6000 |
6000 |
10500 |
|||
Variable cost |
-2700 |
-2000 |
-2300 |
-3850 |
||||
Contribution |
6300 |
4000 |
3700 |
6650 |
||||
Contribution pu |
210 |
200 |
185 |
190 |
||||
Preference |
1 |
2 |
4 |
3 |
||||
Units |
Contribution pu |
Total Contribution |
||||||
North |
30 |
210 |
6300 |
|||||
East |
10 |
200 |
2000 |
|||||
8300 |
||||||||
Less Fixed Cost |
-850 |
|||||||
Profit |
7450 |
|||||||
CALDO FREEDO |
||||||||
UK 50 units capacity |
North |
East |
South |
West |
||||
Demand |
15 |
20 |
30 |
20 |
||||
Variable cost pu |
105 |
120 |
110 |
90 |
||||
Sales |
300 pu |
4500 |
6000 |
9000 |
6000 |
|||
Variable cost |
-1575 |
-2400 |
-3300 |
-1800 |
||||
Contribution |
2925 |
3600 |
5700 |
4200 |
||||
Contribution pu |
195 |
180 |
190 |
210 |
||||
Preference |
2 |
4 |
3 |
1 |
||||
Units |
Contribution pu |
Total Contribution |
||||||
West |
20 |
210 |
4200 |
|||||
North |
15 |
195 |
2925 |
|||||
South |
15 |
190 |
2850 |
|||||
9975 |
||||||||
Less Fixed Cost |
-1000 |
|||||||
Profit |
8975 |
|||||||
Italy 60 units capacity |
North |
East |
South |
West |
||||
Demand |
15 |
20 |
30 |
20 |
||||
Variable cost pu |
110 |
105 |
90 |
115 |
||||
Sales |
300 pu |
4500 |
6000 |
9000 |
6000 |
|||
Variable cost |
-1650 |
-2100 |
-2700 |
-2300 |
||||
Contribution |
2850 |
3900 |
6300 |
3700 |
||||
Contribution pu |
190 |
195 |
210 |
185 |
||||
Preference |
3 |
2 |
1 |
4 |
||||
Units |
Contribution pu |
Total Contribution |
||||||
South |
30 |
210 |
6300 |
|||||
East |
20 |
195 |
3900 |
|||||
10200 |
||||||||
Less Fixed Cost |
-1150 |
|||||||
Profit |
9050 |
|||||||
Hot & Cold Company |
||||||||
Total Contribution |
28350 |
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