# Final Project Harvard Case Solution & Analysis

Problem 3

In each month, Exclusive Billiards produces between 4 and 10 pool tables. The plant operates one 40-hour shift to produce up to seven tables per month. Producing more than seven tables in a month requires the craftsmen to work overtime. Overtime work is paid at a higher wage. The plant can add overtime hours and produce up to 10 tables per month. The following table contains the total cost of producing between 4 and 10 pool tables.

 Pool tables Total cost 4 \$ 62,800 5 66,00 6 69,200 7 72,400 8 75,800 9 79,200 10 82,600

Prepare a table computing the average cost and the marginal cost per pool table for each set of tables: for 4 to 10 tables;

 QUESTION-A Pool Tables Average Cost per Pool Table Marginal Cost per Additional Pool 4 15,700 2,500 5 13,200 1,667 6 11,533 1,190 7 10,343 868 8 9,475 675 9 8,800 540 10 8,260

The average cost per pool table is calculated by dividing the total cost of the table with the total number of tables, which is given in the table that is provided in the question.

As seen in the average cost per pool table, there is a reduction in cost with every extra production of table; this reduction in cost is denoted by marginal cost per additional pool table i.e. there is a 2500 reduction in cost when 5 tables are made compared to making 4 tables and so on.

Assuming that the variable cost for producing each pool table is \$ 3,200, estimate the fixed costs per month in case there is no overtime work. Then compute the increment of variable costs for overtime work.

 QUESTION-B Variable Cost per Pool Table FIXED COST PER TABLE Total Fixed Cost Assuming no Over time Price Per Pool Table 3200 12,500 50,000 13,200 3200 10,000 50,000 13,200 3200 8,333 50,000 13,200 3200 7,143 50,000 13,200 3200 6,275 50,200 13,200 3200 5,600 50,400 13,200 3200 5,060 50,600 13,200

The fixed cost per table is calculated by taking the difference of average cost per table (as calculated in question A) and variable cost per table (as provided in question B), fixed cost per table reduces with extra production. Total fixed cost assuming no over time is calculated by multiplying fixed cost per table with respective total number of units made i.e. 12,500 x 4 leading to 50,000; 10,000 x 5 leading to 50,000 and so on.

The company manufactures a maximum number of 7 tables per month by working a total of 40 hours a month without any over time; if units are made over 7 per month then the labor has to work over time.

Assuming 50,000 is the total fixed cost of the company, total variable cost for the variable units made each month will be calculated as total cost as given in case so minus total fixed cost that is 50,000. The calculation of total variable cost per unit will show that the cost for units per month 8, 9 and 10 is greater as compared to 7 units per month. The additional cost incurred for making more than 7 units is the overtime cost.

 Pool tables Total cost FIXED COST TOTAL VARIABLE COST TOTAL VARIABLE COST PER UNIT INCREMENTAL COST/OVERTIME COST PER UNIT OVERTIME 4 \$62,800 50,000 12,800.0 3,200.0 5 66,000 50,000 16,000.0 3,200.0 6 69,200 50,000 19,200.0 3,200.0 7 72,400 50,000 22,400.0 3,200.0 8 75,800 50,000 25,800.0 3,225.0 25.0 25.0 9 79,200 50,000 29,200.0 3,244.4 44.4 22.2 10 82,600 50,000 32,600.0 3,260.0 60.0 20.0

Suppose Exclusive billiards sells its tables for \$13,200 each. How many tables must it sell to break even?

If \$13,200 is considered to be the selling price for the pool table and variable cost per table is 3,200 then; contribution per table stands at \$10,000 per table with fixed cost for the company being 50,000. As the company needs to make a contribution of 50,000 to breakeven; therefore, the company needs to sell minimum of 5 tables..............

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