IH#1 (Due Aug 31, Monday)

1. In Exhibit 7 of the American Connector Company Case, we are given some data for the costs
at American Connector Company (ACC) and DJC in 1991. In Exhibit 8, we are given some
relevant cost indices that represent the ratio between the prices of various items in the US vs. in
Japan in 1991. Show how these indices can be applied to the data in Exhibit 7 to estimate DJCs
costs if it were to operate in the U.S.

2. Suppose that two firms, ACC and DJC, have total annual fixed costs of $2.142M and
$1.260M respectively. ACC has a rated capacity of 600 million units per year. However, due to
its strategic objective of being flexible and responsive to customer requests, it targets a utilization
level of only 85%. DJC has a rated capacity of 800 million units per year, and its plan is to
achieve utilization as close to 100% as possible. Due to an economic slow-down, neither firm
was able to operate at its target utilization in the most recent year. ACC produced only 420
million units, while DJC produced only 700 million units.
a. Allocating the total fixed costs to the amounts of products they actually produced, what is the
allocation of the fixed costs to each unit product at these two firms?
b. If their capacities were operated at the targeted utilizations, what would be the allocation of
the fixed costs to each unit product at these two firms?

The following is for class discussion (no need to submit): What would you recommend that
ACC do to respond to the threat from DJC, e.g., doing nothing, improving efficiency, if so, how,
etc.? Or, do you think that DJC is real threat to ACC? (Class discussion certainly should not be
limited to this question. Enjoy reading the case and think-aloud, assuming the role of the
managers.)