IENG 6990 Directed Studies in Industrial Engineering Assignment

nquiry from BEI Sensors, Harbor Wholesellers, Calfifornia etc.

 The Bill of Materials for 500 units =  500 x CAD 6844.4928 =  CAD 3422246.4 rounded off to 3422246.

Cost of a generator is approximately CAD 250 to CAD 300 (shipping Costs included)  

Cost of Goods Sold

Cost of Goods Sold is the total Costs of Making the Goods. Below Cost of Goods Sold has been taken as cost of Bill of Materials + Assembly and Operating Costs+ Costs of  Shipping and Receiving Materials. Costs of Goods Sold is given with and without taxes, since taxes are incurred by the company. (Holtzman, 2013)

In addition to the Bill of Materials, the Cost of Goods sold will include the following:

Table 2 Assembly and Shipping Costs per Year for 500 Units

Source: Prepared by Author.

 Total Costs of Goods Sold for 500 units) (Excluding Tax) =  Bill of Materials + Assembly and Operating Costs + Shipping and Receiving Materials  (Holtzman, 2013)

Hence, the Total Cost of Goods Sold (excluding 30% tax) = 3492246.4

Total Cost of Goods Sold (including 30% tax) = CAD 4539920.32 

Total Cost of Goods Sold per Unit (excluding 30% tax) = CAD 6984.4928

Total Cost of Goods Sold per Unit (Including 30% Tax) = CAD 9079.84064

Pricing and Break Even Analysis

Pricing

Total Maximum Retail Price of product at 30 % margin (Excluding Inverter and Installation Charges) = CAD 11803.79 rounded off to CAD 12000

Basic Version:  Without Inverter

Maximum Retail Price: CAD 12000

Premium Version: Inverter included

Maximum Retail Price: CAD 12500

Installation Charges Per Unit: CAD 500 (Including transport of materials to location)

Selling Price With Installation Charges: MRP + 500

The initial start- up costs for equipment and other costs have not been included in the analysis since those costs are to be recovered over the life of the project. However, the Selling Price has been rounded off to include those costs.

To understand the break-even point, or the point where the company will recover all costs i.e (Total Costs =  Total Revenue), (Borosky, 2014) we must first understand the fixed and variable costs:

Fixed Costs

Fixed Costs are costs that are not expected to vary during the period of production or with the number of units produced. (Holtzman, 2013)

Assembly and Operating Costs are taken as fixed Costs here:

• The fixed costs are the cost of rent pegged at CAD 14000 per year. The cost of employing two factory workers is CAD 48000. Additional Expenses on utilities such as electricity etc. is expected to be at CAD 3000.
• Additionally, there are equipment repair and maintenance charges and charges for utilities such as electricity. These are estimated at CAD 3000 per year.

The Fixed Costs Estimated per year are: CAD 65000. Data has been estimates using various online sources to understand normal rates for rent, wages and shipping costs.  Rent was estimated using websites such as eSpace Listings, 2017 and other sites. Wages were calculated using PayScale Human Capital, 2017. Taxes were calculated using Ontatio Government Website. (Government of Ontario, 2017)

Total Maximum Price of 5 KW Power Generator (including all costs) = CAD 13000

Variable Costs

Costs that will vary with the quantity produced. (Holtzman, 2013) Variable Costs here include shipping and receiving materials as well as the total Bill of Materials sold. The two cost items will change according to the quantity produced. Hence, they are included in Variable Costs.

Therefore.

Total Variable Costs include:

CAD 5000 + CAD 3422246.4 = CAD 3427246.4

Variable Cost Per Unit = Total Variable Costs/ Number of Units Produced

Total Variable Cost Per Unit is 6854 approximately.(Borosky, 2014)

Break-Even Point

Beak Even analysis helps understand whether the company will recover costs and whether the venture will be a profitable one. The most basic metric used in break even analysis (among other metrics) is break-even point. (Borosky, 2014)

Formula for Break Even Point =   (Borosky, 2014)

Break Even Point (excluding Taxes): 13 Units (Rounded off from 12.63 units)

Financing

The project will be financed with the help of a bank loan.

Bibliography

Borosky, P. (2014, April 26). Break Even Point Formula: Finance Tutor. Retrieved November 29, 2017, from You Tube: https://www.youtube.com/watch?v=75z5pxQXeI8

eBay. (2017). Wind Generators. Retrieved November 29, 2017, from eBay: https://www.ebay.ca/b/Wind-Generators/121837/bn_7461272

eBay. (2017). Wind Turbine Propeller. Retrieved November 29, 2017, from eBay: https://www.ebay.com/bhp/wind-turbine-propeller

eSpace Listings. (2017). Industrial Space for Rent Windsor – Lease Industrial Spaces in the South Western Ontario region . Retrieved November 29, 2017, from eSpace Listings: https://www.espacelistings.com/industrial-space-for-lease/WINDSOR/62/0/1/english/

Government of Ontario. (2017, August 23). Taxes and benefits. Retrieved November 23, 2017, from Ontario: https://www.ontario.ca/page/taxes-and-benefits

Holtzman, M. P. (2013). Managerial Accounting For Dummies. Hoboken, New Jersey, USA: John Wiley and Sons, Inc.

McMaster-Carr. (2017). McMaster-Carr. Retrieved November 29, 2017, from McMaster-Carr: https://www.mcmaster.com/#

PayScale Human Capital. (2017). https://www.payscale.com/research/CA/Job=Factory_Worker/Hourly_Rate. Retrieved November 29, 2017, from PayScale Human Capital: https://www.payscale.com/research/CA/Job=Factory_Worker/Hourly_Rate