Consider again the plight of Jenny, the manager at DeFlava Coffee Corporation, whose boss wants to manufacture and sell the new Decaffi Bean coffee product, perhaps using it to replace the Double Shot coffee product.

Suppose the accounting department has projected that profit per kilo will be $2.00 higher for Double Shot coffee than for Decaffi Bean coffee. The marketing department predicts that DeFlava Coffee can sell 1000 kg of Decaffi Bean coffee in the first year, and then more each year for the next 10 years, if it drops Double Shot coffee. During that same time period, the marketing department forecasts that sales of Double Shot coffee will be 800 kg in the first year, with sales decreasing slightly after that if the company does not produce Decaffi Bean coffee. However, if the company produces both types of coffee, predicted sales for Decaffi Bean reduce to 700 kg in the first year, with a slow and steady increase in sales over the next 10 years. Predicted sales for Double Shot coffee will decrease to 650 kg during the first year, and decrease slightly each year for the next 10 years.

The production department has determined that the new Decaffi Bean coffee is possible to manufacture, and that the factory can be reconfigured to accommodate the new coffee while continuing to produce the old Double Shot coffee. If DeFlava Coffee drops Double Shot coffee, it can convert the equipment so that this can be used to produce Decaffi Bean coffee. The human resources department is confident that numerous qualified people are available to work if the company wants to produce both types of coffee. If the company drops Double Shot coffee, those people currently working on that product can easily be retrained to work on Decaffi Bean coffee. The chief financial officer has arranged for financing if it is needed.

Required:

a Based on the above information, what are the advantages and disadvantages of: (i) dropping the Double Shot product line and producing Decaffi Bean; (ii) continuing production of Double Shot and not producing Decaffi Bean;

(iii) producing both Double Shot and Decaffi Bean; and (iv) producing neither coffee bean? How would you decide which alternative is best?

b What additional information would make your decision in the previous question easier?

c What other alternative solutions can you think of?