Camelback Communicatipon

Topics: Costs, Variable cost, Cost Pages: 8 (1578 words) Published: January 21, 2013
Harvard Business School

9-1 85-1 79
Rev. 3/21/91

Camelback Communications, Inc.
Camelback Communications, Inc. (CCI), located near Phoenix, Arizona, manufactured radio and television antennas. The firm had four distinct product lines, each serving a different aspect of the antenna market. The first product line consisted of simple "rabbit ear" antennas. There were several models in the line ranging from the simplest FM and TV antennas to more complicated designs that could improve reception by rejecting multipath signals. The second product line contained dipole antennas for FM and TV reception. These were more sophisticated antennas than the "rabbit ear" line and were the type typically seen attached to chimneys. The third product line was rotators for the dipole line. Rotators consisted of an electric motor that rotated the dipole and a controller that resided by the receiving unit (FM radio or TV). There was little variation in the motors, but the controllers varied considerably from simple controllers that were operated by turning a knob on the controller base to more sophisticated versions that had present antenna positions keyed to the channel being received.

The final product line consisted of two electronic antennas, one for FM and the other for TV. These were used in weak reception areas and, in addition to acting as antennas, amplified the signal so that it was strong enough for the receiver to be able to reproduce it properly. In the last five years, CCI had doubled the number of products offered, expanded the production facility twice, and just recently introduced the electronic antenna line. While CCI was very profitable, company president Lincoln McDowell was concerned about its ability to cost products accurately. In particular, some product seemed exceptionally profitable, while other potential products which the firm should have been able to make, appeared impossible to manufacture at a profit. The production manager was convinced that his production processes were as good as any in the industry, and he was unable to explain the apparent high cost of producing these potential products.

Professor Robin Cooper prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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Camelback Communications, Inc.

McDowell agreed with his production manager and was convinced that the cost accounting system was at fault. He had just recently hired Glenn Peterzon, a management consultant, to analyze the firm's cost system and to prepare a presentation to the senior management team. Specifically, McDowell had asked Peterzon to prepare a simple example that demonstrated how the cost system distorted the firm's knowledge of its product costs. Peterzon had begun his study by documenting the existing cost system. It was a very simple system that used a single burden rate for all overhead costs. The burden rate for the year was determined by adding together the budgeted variable and fixed overhead costs and dividing this sum by the number of budgeted direct labor hours. The standard cost of a product was then found by multiplying the number of direct labor hours required to manufacture that product by the burden rate and adding this quantity to the direct labor and material cost. Peterzon became convinced that the cost system was partially to blame for some of the problems the firm was experiencing. However, with over a hundred products, it was difficult to understand how the...
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