Professional Documents
Culture Documents
Case # 7 Exhibits - Gold Chem Exhibit #1: Economic Comparison - Gold Chem vs. Mega Chemicals
Market Demand Information: Spot Market Price - $10,000/ton Annual shipments- 80,000 tons
Exhibit #2: Economic Comparison: Gold Chem vs. Mega Chemicals - Current Year Gold Chem Annual Production Variable Costs (per ton) Raw Materials* Manufacturing Transport Total Variable Costs Profit Before Overhead $4,000 $4,000 $950 $8,950 $1,050 $5,000 $4,000 $1,000 $10,000 $0 40,000 tons Mega Chemicals 10,000 tons
* GoldChem owns its own sources of raw materials (MegaChem purchases raw materials on open market)
Page 1 of 2
Exhibit 3A: Assumptions 1. Market consumption remains constant at 80,000 tons/year 2. Mega Chemicals production increases from 10,000 tons to 40,000 tons "immediately" 3. For every 10,000 ton increase in production by Mega Chemicals, GoldChem production decreases by 5,000 tons
Exhibit 3B: Volume-Based Changes in Cost Structure Mega Chem - Cost structure For every 10,000 ton INCREASE in production, manufacturing costs DECREASE by $200/ton** For every 10,000 ton INCREASE in production, transport costs drop by $20/ton
GoldChem For every 5,000 ton DECREASE in production, manufacturing costs INCREASE by $200/ton For every 5,000 ton DECREASE in production, transport costs INCREASE by $50/ton
** MegaChem possess extra manufacturing capacity in its existing operations and can realize cost savings as volume increases !
Page 2 of 2