2014 AICPA Accounting Competition Management Accounting All characters and company information and names in this case document are fictitious. Any resemblance to real persons, living or dead, or companies is purely coincidental. Stage Two Congratulations! Humble Pies owners Linda and Taylor liked what they read in your teams proposal, and they think you are on the right track in helping determine more accurate cost information relating to Humble Pies products. Now they would like your recommendation on which of the following two equipment investment opportunities they should take. Option 1 Humble Pies just received a request for proposal (RFP) from a national fast food chain to provide upscale individual mini-pies packaged in clear plastic containers with the chains label. The chain will pay Humble Pies $1.50 per pie for a 3-year agreement guaranteed for 2,200,000 pies (with the possibility of extension depending on the success of the agreement). The pies would be made using existing recipes and ingredients but would require a large investment in special packaging machinery of $500,000 with a 10-year life. Humble Pies would expect to achieve a 15% net profit margin on the agreement. Option 2 Alternatively, as labeling is considered the primary bottleneck, Humble Pies is also considering a new labeling machine (different from the machinery required in Option 1) with an estimated five-year life. Some variety packs require especially heavy labor to assemble the different flavors, snap on the plastic lid, and affix the labels in the right spot. The new machine would cost $500,000 and save an estimated $14,500 per month in labor cost. It is also expected to increase throughput by $13,000 revenues per month with roughly 20% markup on incremental production costs (excluding new investment). Your teams assignment Analyze each of these business opportunities from financial, strategic and risk perspectives in a 5- to 6- minute video (using the device provided by the AICPA) and provide 1-3 pages of supporting documentation (contents are up to your team, but must be submitted in PDF, Word or RTF format). Use the following as a guide when making your recommendations: 1. Assess the opportunities in terms of increased profitability and return on investment (ROI). What does this analysis suggest for Humble Pies? 2. Comment on the strategic, technical and risk factors that are relevant to this decision. What does this analysis suggest for Humble Pies? 3. What action do you recommend for Humble Pies at this time?