1. Identify (ie, form the mathematical function T C = F + V x) the production cost functions for the production alternatives and find the breakeven point for each production technique (technology).

2. Develop a five year (future) unit sales forecast using your own judgment of the appropriate methodology and growth estimates.

Info: The Colt James brand of meat snacks is produced a ranch/snack company headquartered outside of Absaroka, MT. They make packaged meat snacks using Montana-raised cows (angus crossbred with waygu) and allnatural ingredients. They sell the meat snacks to specialty food stores across the US and convenience stores in Montana. They are at the point where formal operations analysis will benefit their planning process. They are using a meat packaging company in South Dakota, and the owner is interested in improving margins by using a different production technique. Currently, the meat snacks sell at wholesale for $7 per package. Last year, Colt James sold 3,000 packages. Production methods/techniques: At the current time, the owner has identified three different possible production methods: 1) ship the cows to a meat packaging company in South Dakota, giving them specifications on ingredients and packaging; 2) butcher the cows at the ranch, pre-mix the meat snack at the ranch, and send to a packager in Ronan for final packaging; 3) build a full production facility at the ranch and bring production entirely under the control of the owner. For options 1 and 2, the finished meat snacks are shipped back to the Colt James ranch and stored until ready for distribution. The owner has done some work evaluating the costs of each production technique; those results are presented in a table at the end of this document. Note that option 3 variable costs are valid for all ranges of output, but that option 3 fixed costs are for a production facility designed to have a maximum capacity of 200,000 units per year. Unit volumes and unit price forecast assumptions Last year, the company sold 3,000 units (packages). The expected CAGR (compound annual growth rate) for the beef snack market is 9% (for the next five years). The owner, who very much believes in his product, expects that his growth rates for the next five years (listed in order) will be: 100%, 75%, 75%, 50%, 30%. The wholesale price per unit ($7) is not expected to change.

C) mixes, o/s pkging 3 1.5 7.5 2.5 Beef per lb costs are all net yield unless otherwise indicated 1 lb of butchered beef yields 3 packages SDO/S Beef cost, per lb Spice & other ingredients, per mix lb 0/S mixing cost, per mix lb o/s packaging cost, per pkg 1 Cattle shipping cost, per 100 lbs 3.25 Outbound shipping cost, perib Inbound shipping cost, perib I does full mfg 3 1.5 0 1 0 0 1 0 0 0 2. 0 3.5 3.5 0 0 0 0.1 Variable materials costs: Packaging materials, per pkg Variable labor costs: Butchering, per lb Mixing, per lb Bulk packaging for shipping, per lb Final packaging, per pkg 0 0 0 2.1 0.25 0.5 2.1 0.25 0 0.2 0 0 0 Fixed costs (per year): Shop foreman salary & benefits Rent/land usage (build on unused land on ranch) Utilities (primarily electric) Maintenance 0 2500 250 10000 0 3000 500 45000 0 6000 1000 Capital costs (per year): Production facility brick & mortar Freezer Storage shelving Mixing machine Packaging machine Oven/smoker Misc production equipment 1000 640 0 0 2400 640 200 500 5000 1920 1000 500 1000 0 0 0 200 0 0 650 1000 C) mixes, o/s pkging 3 1.5 7.5 2.5 Beef per lb costs are all net yield unless otherwise indicated 1 lb of butchered beef yields 3 packages SDO/S Beef cost, per lb Spice & other ingredients, per mix lb 0/S mixing cost, per mix lb o/s packaging cost, per pkg 1 Cattle shipping cost, per 100 lbs 3.25 Outbound shipping cost, perib Inbound shipping cost, perib I does full mfg 3 1.5 0 1 0 0 1 0 0 0 2. 0 3.5 3.5 0 0 0 0.1 Variable materials costs: Packaging materials, per pkg Variable labor costs: Butchering, per lb Mixing, per lb Bulk packaging for shipping, per lb Final packaging, per pkg 0 0 0 2.1 0.25 0.5 2.1 0.25 0 0.2 0 0 0 Fixed costs (per year): Shop foreman salary & benefits Rent/land usage (build on unused land on ranch) Utilities (primarily electric) Maintenance 0 2500 250 10000 0 3000 500 45000 0 6000 1000 Capital costs (per year): Production facility brick & mortar Freezer Storage shelving Mixing machine Packaging machine Oven/smoker Misc production equipment 1000 640 0 0 2400 640 200 500 5000 1920 1000 500 1000 0 0 0 200 0 0 650 1000