Alex & Company is an American multinational conglomerate holding company headquartered in Boston, MA that oversees and manages a number of subsidiary companies. The company wholly owns Cheapo Insurance, Brunswick, Dairy Queen, Lawrys The Prime Rib, Party Time, Diamonds, Inc, Boston Celtics and BSA Airways. Alex & Co. also owns half of Boston Beer and an undisclosed percentage of several other beer companies, and has significant minority holdings in Walmart, General Motors, Banks-R-Us and . Alex & C0. has averaged an annual growth in book value of 25.7% to its shareholders for the last 48 years (compared to 9.4% from S&P 500 with dividends included for the same

period), while employing large amounts of capital, and minimal debt.

Alex & Co. has hired your team to address a variety of issues and make recommendations

for several of its operating divisions. (Note: All parts of this case are independent of each

other)

Part 1: Specialty Parts Division

Alex & Co mass-produces a product that normally sells for $3.90. It sells approximately 35,000 of these units each year. The variable costs for each unit are $2.30 and the fixed costs per unit are $0.15. A company in Timbuktu that has been unable to produce enough of a similar product to meet customer demand would like to buy 15,000 of these units, slightly modified, at $2.60 per unit. The production of these units is near full capacity at Alex & Co, so to accept the offer from the Timbuktu company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit due to the shift differential. However, variable selling costs would be reduced by $0.20 a unit since there will be no sales commission paid. Although the order will not impact the companys fixed overhead in order to make the modification requested, Alex & Co. would have to purchase special tooling at a cost of $3,500. After fulfillment of the order there would be no additional use for the special tooling.

In addition, a Estonian company has asked for a special order of 2,000 units with no modifications to the existing product. To meet this special order Alex & Co would not need an additional shift. However, because an independent sales rep had presented this order on behalf of the Estonian company Alex & C0 would have to pay a %5 sales commission. The Estonian company is willing to pay $3.10 per unit.

A. TimbuktuOrder:

1) Prepare an analysis of the Albanian order to determine if it is profitable? 2) Should Alex & Co. accept the order? Why or Why not? 3) Which costs (if any) are irrelevant? 4) What is the lowest amount Alex & Co. would accept for the order? 5) List two possible reasons not to accept your recommendation in A (2) above.

B. EstonianOrder: 1) Prepare an analysis of the Estonian order to determine if it is profitable? 2) Should Alex & Co. accept the order? Why or Why not? 3) What is the lowest amount Alex & Co. would accept for the order? 4) List two possible reasons not to accept your recommendation in B (2) above.