Production Manager Memo
 

To:        Mr. Bob Johnson              Division Operations Director
From:   Jenny Sanders              Production Manager
Date:    December 18, Year 5
Re:       Brink line
As Year 5 comes to a close, I would like to provide a brief update on our projections for the Brink product line in Year 6. We expect to close this fiscal year with 40,000 units sold.  Due to increases in forecasted demand as a result of a robust local economy, we expect to see a 25% increase in unit sales for Year 6 from Year 5 levels.  Along with the increase in sales, we project the following for related costs in Year 6:
•	Direct materials costs totaling $35,000.  However, we do have some concerns that raw materials prices may be going up in the last six months of the fiscal year.
•	Fixed overhead and variable overhead costs are expected to be $280,000 and $180,000, respectively.  We are hoping to implement some new measures that have the potential of reducing variable overhead costs by up to 10%.
•	Hourly wages for the workers who produce Brink are forecasted at $8 per hour.  To be conservative, we assume that it will continue to take 0.5 hours to produce each Brink unit.  However, given that there has been no employee turnover in this area during the last year, we believe that employee efficiency could reduce direct labor costs by up to 15% during Year 6.
In the last month, we were approached by a competitor who offered to sell us a very similar product for $9.10 per unit.  If we were to accept this offer, we would no longer be manufacturing the Brink product in-house.  In considering their offer, we have several scenarios we need to further analyze.  In particular, we know that we would be able to cut the fixed costs mentioned above by 30% if we were to buy.  Fortunately, we have excess capacity at our plant and so opportunity costs do not need to be factored into our analysis; this however may change in future years.    I will provide further updates as we progress into the new year. - Jenny