PORTAL CORPORATION Harvard Case Solution & Analysis

PORTAL CORPORATION

PROBLEM IDENTIFICATION:

Portal Corporation wanted to expand its production units from 60,000 to 120,000 for the next upcoming year as it had identified the demand that demand for next year would increase. To increase the production capacity Company has to allocate its unit production to its two production facilities such as Ogden and Sandy. But the problem faced by the Portal Corporation that, when it increases its production capacity than per unit cost also increases for both the plants. It also creates the problem that if excess capacity should be used than how much each plant can produce and how the allocation of the unit can be allocated. To better understand the problem and propose a solution to it, there are a few questions that should be answered.

  • Identify the contribution margin of an individual plant at normal capacity?
  • What is the operating income per unit of each capacity?
  • How excess capacity can be utilized to produce additional units of 120,000?

To answer these questions and propose solutions, evaluation has been made under the following:

EVALUATION:

To evaluate the Portal Corporation for producing excess capacity and allocation of unit to each production facility information has been taken from the Excel sheet and also from the given case problem 3-37. The data have been usedfor proposing the solution are such as the selling price, fixed cost, total cost per unit, how these incorporate into the total income per unit, what are the production rate per day for each production facility, what amount of normal capacity each plant has, and what is the maximum capacity of each plant that can be utilized to produce maximum output.

These information further incorporates the result of how these variables used in generating more demand and generating more revenues for the company. What are the affects these variables has in the short term and in the long term, what much these variables help the company to reduce the production cost on a daily basis.

The information used also incorporates the employees as they are the key element in the production process. For Portal’s employees if a company wanted to produce excess capacity than what benefit employees will gain from working additional hours or days.

For solving the problems that have been identified, information that would be further used are below:

The additional production of units could cost $5 for Ogden and $10 for Sandy and excess capacity of working days should be increased from 240 days to 300 days for both the production facilities. The production rate of Ogden plant is 250 units per day and for Sandy this rate is equal to 200 units per day. After going for the production of additional capacity the contribution margin at a normal production level for the Ogden plant would reduce from $210 to $205 in excess capacity and for the Sandy production facility, it would be reduced from $190 which is a normal capacity to $185 for excess capacity.

FUTURE SCENARIO:

The future prospect of the problems is that when these problems persist for a longer period of time than it would reduce the production capacity under an efficient utilization of each production facility. The production facility of Sandy would be reduced that would increase the cost per unit and the demand that is predicted to increase would be unsatisfied as to meet this increased demand Sandy production facility is not producing at its full potential that lead towards producing lower units which would be less than the market demand.

On the other side if those above mentioned problems would be solved than not, only the operating income of each production unit would increase, but also it would generate more revenues to Portal Corporations that would in result lead towards expansion of the company. From that expansion, it would create employment opportunities for new candidates and also existing employees would be benefited from it interms of getting higher salaries and promotion. This would also satisfy the increasing demand in the market where customers would prefer the Portal Corporation against company’s competitors.

MAKING DECISIONS

To solve the above mention problems such as producing excess capacity at lower cost and using the unused plant capacity for the predicted increase demand and allocation of excess capacity to each plant, there are threecomponents that could be used under three different alternatives. These components are such as the breakeven point at which the cost is equal to profit, contribution margin that could be generated from per unit production of each plant and allocation of total production volume.

Breakeven Point: Breakeven point is the point where all cost related to production of the units is equal to the revenue generated by each of these units and there is not loss or profit and where all the inputs are equal to its outputs. On the other hand the opportunity ..............

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