1. In the Fineprint Excel Template provided (Exhibit 1 tab), complete the highlighted cells in column B to represent cost per unit (where one unit is 100 brochures). All calculations must be done directly in the template using Excel formulas (MANUALLY ENTERED AMOUNTS WILL RECEIVE ZERO CREDIT).
2. Explain the difference between manufacturing costs and nonmanufacturing costs and provide examples for each.
3. Explain the difference between fixed cost behavior and variable cost behavior in terms of volume, total cost, and unit cost. Provide examples of fixed costs and variable costs.
4. What factors should John Johnson consider when deciding whether or not to accept Abbie Jenkin's order? Are all of the factors quantitative? Explain your responses.
5. Considering the information provided in the case, should John Johnson accept Abbie Jenkin's order? Support your decision with quantitative analysis (in Excel) and solid rationale.
6. Assume that current monthly production at Fineprint is 120,000 brochures. Use the unit cost information you computed in item 1 (above) to prepare a cost analysis for the new level of production. You may create (and label) a new sheet in the Excel file or add to the Exhibit 1 sheet provided. Regardless of your approach, do not type amounts into the cells; use formulas and feed data from cells, as appropriate.
7. Should Mr. Johnson accept Ms. Jenkins order under these circumstances? Support your decision with quantitative analysis (in Excel) and solid rationale.
8. How should FinePrint respond to the opportunity presented by SmallPrint Shop? Answer the question in your own words and support your decision with quantitative analysis and solid rationale.
9. Explain what is meant by opportunity cost. Did opportunity cost play a role in any of your decisions?
10. Explain, in your own words what you have learned about cost behavior from completing this case.
L Tell me what you want to do... FactSet View Review Formulas Data Page Layout Insert Home File A A X Cut General E Wrap Text 11 Calibri 0 Conditional Fa Formatting Copy $% EZ -A Merge & Center BIU aste Format Painter Number Alignment Font Clipboard 14 F G E C B A Exhibit 1 in the case shows the summary of monthly operating costs assuming printing vohume is 150,000 brochures, as presented below Monthly costs at 120,000 volume Cost per 100Monthly costs at brochures 150,000 volume Manufacturing costs: 5 Direct material, variable Direct labor, variable BDirect labor, fixed Manufacturing overhead variable O Manufacturing overhead, fixed 1 Total manufacturing costs 12 3 Nonmanufacturing costs: 14 Marketing, variable 15 Marketing, fixed 16 Corporate, fixed 17 Total nonmanufacturing costs $6,000 1,500 3,000 1,500 3375 $15,375 $1,500 1,875 3,750 $7,125 $22,500 18 Total costs 19 20 Variable manufacturing costs per unit 21 Variable nonmanufacturing costs per unit 22 Fixed manufacturing costs per unit 23 Fixed nonmanufacturing costs per unit 24 25 Cpe FINEPRINT COMPANY John Johnson reflected on both offers he had received in the past couple of days First, Abbie Jenkins, a friend of Johnson's and the owner of a small company in neartby Keswick, Virginia, had called to see if Johnson's printing company, FinePrint Company, could accommodate a special printing order next month. In addition, Ernest Bradiey, the owner of a local one-room printing operation in Charlottesville, Virginia, called SmallPrint Shop, had stopped by to see if FincPrint Company could use some help 201AL THE printing color brochures over the next few months. COMPANY BACKGROUND Johnson's company, FinePrint Company, printed elaborate high-quality color brochures in its facility located in Charlottesville, Virginia. It primarily served other businesses in the central Virginia area, although it did have some clients in southwest Virginia and as far east as the Chesapeake Bay region of the state. Monthly production a its Charlottesville facility was running at around full capacity of 150,000 brochures per month. John Johnson owned and managed the company. He employed one sle representative and one printing press operator, although he frequently relied on temporary labor to help in the printing process as needed to accommodate any changes in printing volume. John felt that many of his costs were fixed, but that some costs varied with the Aumber of brochures he printed and sold. Exhibit 1 contains information related to FinePrint's monthly operating costs for the company's current activity level of 150,000 brochures per month The company typically priced its printing services at an average of $17 per 100 brochures printed. Historically, Johnson had encountered little variation in pricing from job to job, although occasionally, special situations did arise. He wondered how he should handle those special situations. He didn't have a "rule of thumb" he could apply, but he wished he could find one. THE SPECIAL ORDER In her phone call, Abbie Jenkins indicated that she needed a special job printed next month. She needed 25,000 brochures related to a new product for distribution at three trade shows she was attending, When John quoted Abbie the usual price of $17 per 100 brochures, Abbie sighed. "John, I know that FinePrint does a high-quality job, bul I'm short on funds right now because I have spent so much on getting this new product up and running. I can't go any higher than $10 per 100 brochures on this job. I you can't do it for that, I'll have to go to someone else. I'm sure the brochures won't look nice, but that's all I've got to spend." Ins Crl John was enthused about the potential business, but when he inquired about whether Abbie would have future printing needs that FinePrint could help with, Abbie expressed doubt. "We just don't do much of this type of stuff. This is the first material we've had printed like this in years, and we're only doing it because we're trying to get this new product off the ground. I suspect this will be the last for a long while." BLACI John knew he didn't have the capacity at the moment to handle the special order. And, $10 per 100 brochures sounded low. John replied, "Let me look into this. I'm not sure we can do it for $10, but I'll be glad to think about it. I'll give you a call back in a couple of days." John realized that with this order he wouldn't have to pay his sales representative the typical sales commission of $1 per 100 brochures, but that $1 savings wouldn't begin to make up for the lower price. THE OUTSOURCING OPPORTUNITY Ernest Bradley owned a local one-room printing operation called Small Print Shop. His largest customer had just informed him that it was going out of business and Ouwould no longer need his printing services. Most of SmallPrint's customers were small companies needing basic printing services in small quantities. But several of his customers, including his largest customer, used his services for both basic printing services and more elaborate work, including color brochures. Ernest had a long-standing relationship with the customer's owner and had purchased the small printing press he used for color brochures partially to serve this customer's needs. He wasn't sure how he was going to get enough business to make up for this loss, especially since he primaril: was known for his basic printing services rather than printing elaborate brochures. Ernest decided to stop by to talk with John Johnson, owner of FinePr Company. "I've had some bad luck. My largest customer just informed me that it closing its doors. I've been doing their color printing work for several years, and thm closing leaves me with a lot of idle capacity. I wonder if you have any extra broch printing I can help with. I'd be happy to do it really cheaply, just to keep my press go I would go as low as $8 per 100 brochures. And I could handle 30,000 brochures for next month." John thought that $8 per 100 brochures sounded like a good deal. He wasn' that even he could print that cheaply. And he knew that SmallPrint did a good jo had used them before. They did high-quality work, and were dependable. L Tell me what you want to do... FactSet View Review Formulas Data Page Layout Insert Home File A A X Cut General E Wrap Text 11 Calibri 0 Conditional Fa Formatting Copy $% EZ -A Merge & Center BIU aste Format Painter Number Alignment Font Clipboard 14 F G E C B A Exhibit 1 in the case shows the summary of monthly operating costs assuming printing vohume is 150,000 brochures, as presented below Monthly costs at 120,000 volume Cost per 100Monthly costs at brochures 150,000 volume Manufacturing costs: 5 Direct material, variable Direct labor, variable BDirect labor, fixed Manufacturing overhead variable O Manufacturing overhead, fixed 1 Total manufacturing costs 12 3 Nonmanufacturing costs: 14 Marketing, variable 15 Marketing, fixed 16 Corporate, fixed 17 Total nonmanufacturing costs $6,000 1,500 3,000 1,500 3375 $15,375 $1,500 1,875 3,750 $7,125 $22,500 18 Total costs 19 20 Variable manufacturing costs per unit 21 Variable nonmanufacturing costs per unit 22 Fixed manufacturing costs per unit 23 Fixed nonmanufacturing costs per unit 24 25 Cpe FINEPRINT COMPANY John Johnson reflected on both offers he had received in the past couple of days First, Abbie Jenkins, a friend of Johnson's and the owner of a small company in neartby Keswick, Virginia, had called to see if Johnson's printing company, FinePrint Company, could accommodate a special printing order next month. In addition, Ernest Bradiey, the owner of a local one-room printing operation in Charlottesville, Virginia, called SmallPrint Shop, had stopped by to see if FincPrint Company could use some help 201AL THE printing color brochures over the next few months. COMPANY BACKGROUND Johnson's company, FinePrint Company, printed elaborate high-quality color brochures in its facility located in Charlottesville, Virginia. It primarily served other businesses in the central Virginia area, although it did have some clients in southwest Virginia and as far east as the Chesapeake Bay region of the state. Monthly production a its Charlottesville facility was running at around full capacity of 150,000 brochures per month. John Johnson owned and managed the company. He employed one sle representative and one printing press operator, although he frequently relied on temporary labor to help in the printing process as needed to accommodate any changes in printing volume. John felt that many of his costs were fixed, but that some costs varied with the Aumber of brochures he printed and sold. Exhibit 1 contains information related to FinePrint's monthly operating costs for the company's current activity level of 150,000 brochures per month The company typically priced its printing services at an average of $17 per 100 brochures printed. Historically, Johnson had encountered little variation in pricing from job to job, although occasionally, special situations did arise. He wondered how he should handle those special situations. He didn't have a "rule of thumb" he could apply, but he wished he could find one. THE SPECIAL ORDER In her phone call, Abbie Jenkins indicated that she needed a special job printed next month. She needed 25,000 brochures related to a new product for distribution at three trade shows she was attending, When John quoted Abbie the usual price of $17 per 100 brochures, Abbie sighed. "John, I know that FinePrint does a high-quality job, bul I'm short on funds right now because I have spent so much on getting this new product up and running. I can't go any higher than $10 per 100 brochures on this job. I you can't do it for that, I'll have to go to someone else. I'm sure the brochures won't look nice, but that's all I've got to spend." Ins Crl John was enthused about the potential business, but when he inquired about whether Abbie would have future printing needs that FinePrint could help with, Abbie expressed doubt. "We just don't do much of this type of stuff. This is the first material we've had printed like this in years, and we're only doing it because we're trying to get this new product off the ground. I suspect this will be the last for a long while." BLACI John knew he didn't have the capacity at the moment to handle the special order. And, $10 per 100 brochures sounded low. John replied, "Let me look into this. I'm not sure we can do it for $10, but I'll be glad to think about it. I'll give you a call back in a couple of days." John realized that with this order he wouldn't have to pay his sales representative the typical sales commission of $1 per 100 brochures, but that $1 savings wouldn't begin to make up for the lower price. THE OUTSOURCING OPPORTUNITY Ernest Bradley owned a local one-room printing operation called Small Print Shop. His largest customer had just informed him that it was going out of business and Ouwould no longer need his printing services. Most of SmallPrint's customers were small companies needing basic printing services in small quantities. But several of his customers, including his largest customer, used his services for both basic printing services and more elaborate work, including color brochures. Ernest had a long-standing relationship with the customer's owner and had purchased the small printing press he used for color brochures partially to serve this customer's needs. He wasn't sure how he was going to get enough business to make up for this loss, especially since he primaril: was known for his basic printing services rather than printing elaborate brochures. Ernest decided to stop by to talk with John Johnson, owner of FinePr Company. "I've had some bad luck. My largest customer just informed me that it closing its doors. I've been doing their color printing work for several years, and thm closing leaves me with a lot of idle capacity. I wonder if you have any extra broch printing I can help with. I'd be happy to do it really cheaply, just to keep my press go I would go as low as $8 per 100 brochures. And I could handle 30,000 brochures for next month." John thought that $8 per 100 brochures sounded like a good deal. He wasn' that even he could print that cheaply. And he knew that SmallPrint did a good jo had used them before. They did high-quality work, and were dependable
