1)Study Exhibit 2 in the case carefully.

Can you explain why overhead costs vary so greatly from

plant to plant in Michigan Manufacturing's system?

Ans:

▪ Plant is operated with low product lines

▪ Plant has two product lines: 60% of sales in on-highway axles, 40% of sales in off-highway
axles

▪ Lack of investment lead to bad condition of machine tools

▪ The process and products change over time increasing the costs of machine operations as
they operate on low volumes per model

▪ The plant is degenerated with inadequate electrical system, springing leakage water system
and well below insurance underwriter standards

▪ The labour had bad habits like high absenteeism, degree of polarization within age groups,
lack of motivation

▪ Increased maintenance cost due to old facility and warehouse

▪ Past service pension funding expense

▪ Manufacturing costs at Pontiac plant were high compared to other modernised plants

▪ The product family is 20 in numbers increasing the costs of operations within the plant