Professor Elam

Tuesday Oct 10, 2017

GM has too many plants making small cars that are not selling.

The Obama Administration, as well as the state of California, wants automakers to build more small cars, read fuel efficient as well as electric cars. but now that gasoline prices are dropping, those cars are not selling.  In the article we learn that Ford is running plant at 100% plus capacity.This occurs when a third shift is added. GM runs but one shift to make the slow selling Sonic and Bolt, the latter an electric car. So the plant sits idle  for two potential shifts.

In managerial accounting we learn that break even is calculated by dividing Fixed Cost by Contribution Margin, sales less variable costs.  When fixed costs rise, the break even point in unit sales and sales dollars rises making the company less profitable.

GM closed its Fremont, CA plant during its bankruptcy. Toyota was making its smaller Tacoma pickup there. So Toyota transferred Tacoma production here. Recall that the Toyota plant here, designed to produce the larger Tundra pickup, actually closed three months after it opened.  Now it is running two shifts a day or 100% capacity.

The purpose of the managerial accounting course for non accounting majors is to make students aware of cost behaviors and how to improve the bottom line using cost equations.