1.Compare and contrast the qualitative aspects of the different production methods. Are there considerations here that are not specified in the problem as stated? Have we specified all of the potential factors that differ among the three production techniques? Could any of these factors have a financial impact?

2.This exercise only considers gross profit. What costs are we missing to give us a full financial picture?

info: 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.

 

Beef per lb costs are all net yield unless otherwise indicated 1 lb of butchered beef yields 3 packages Beef cost, per lb Spice & other ingredients, per mix lb O/S mixing cost, per mix lb O/S packaging cost, per pkg Cattle shipping cost, per 100 lbs Outbound shipping cost, per lb Inbound shipping cost, per lb 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 Fixed costs (per year): Shop foreman salary & benefits Rent/land usage (build on unused land on ranch) Utilities (primarily electric) Maintenance Capital costs (per year); Production facility brick & mortar Freezer Storage shelving Mixing machine Packaging machine Oven/smoker Misc production equipment SD O/S 7.5 2.5 1 1 3.25 0 3.5 0 0000 0 0 2500 250 1000 640 0 0 0 0 CJ mixes, o/s pkging 3 1.5 0 1 0 2 3.5 0 2.1 0.25 0.5 0 10000 0 3000 500 2400 640 200 500 0 0 200 CJ does full mfg 3 1.5 0 0 OOOO 0 0 0 0.1 2.1 0.25 0 0.2 45000 0 6000 1000 5000 1920 1000 500 1000 650 1000