CASE:
Involves two companies namely:
1. Vecu ▪ A French company that produces cars, Lorries, buses and agricultural machinery.
2. Kamp ▪ One of Vecu’s subsidiaries ▪ An International leader in the field of engine production ▪ Develops racing car engines for many years
Kamp produces four main types of car engines
Type 1 – conventional type / sells externally
Type 2, 3 & 4 – high tech types / sell internally
Financial Data on Kamp Motors 2001 (x €1 million)
Sales = 361
External Cost = 204
Staff = 98
Depreciation = 20
An important order in 2002 (Develop Type 2A engine)
Quantity = 5000 engines
Variable cost per unit = 2500
Full cost per unit =…show more content… Kamp was encouraged by the board to look for possibilities of increasing the profit.
By increasing the Kamp’s profit, we can purchase in larger amount which could be advantages to us, this could lower the cost per unit. While the capacity hasn’t reached the limit, we are only producing at 90% of capacity, which we could produce in full capacity. We also have strength in field of technology which make our engines are interested to the market, and there is a sizeable market outside Vecu. There are not many engines on the market which are comparable to Kamp’s quality (e.g. efficient fuel consumption, power and noiselessness). So we could earn a higher profit by supplying engines types 2, 3 and 4 externally, like the types 1 does. By these changes are only result in a few fluctuations, and sometimes we operate considerably below maximum capacity. We could consider expanding the capacity (e.g. expand the factory, increase maximum capacity). This would effect for the long-term profit, because we have big market which would like to purchase our engines external and internal. This can ensure that we will keep producing at most capacity, now we are producing at 90% of capacity which are only 10% left. By supplying types 2, 3 and 4 externally we would need more capacity to make sure that we have efficiency engines to supply internally, and earn a higher profit by supplying them to
