Answer the 3 Questions at the end using the following information and case study. Showing all work and calculations/steps taken please!
(This case study is derived from one written by Frank C. Burinsky and Michael A. McGinnis, Shippensburg University, The company name, product and component names, overseas locations for selling the products, and shipping costs have been changed to protect the actual company name and reflect changes in trade agreements and shipping practices) Jaguar Electronics, Inc. is a specialized electronics firm located in Charleston, South Carolina in the United States. The company was founded in 1965 and has enjoyed success and modest growth as a supplier of components to large manufacturers of specialty electronic-mechanical devices. Recently the company's management has decided to begin manufacturing and marketing a product called the 'Airflow'. The Airflow is manufactured by assembling two component parts: (1) mechanical assemblies (MA), which are purchased from a company in Belgium; and (2) electronic assemblies (EC) manufactured by Jaguar Electronics at its Charleston facility. Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturers of products similar to the Airflow for several years. Most of the consumer demand for the final products comes from areas enjoying a relatively warm climate throughout the year. Accordingly, the manufacturers of those products have sold their goods with great success throughout the southern and southwestern United States. The population and economic growth in these areas have contributed greatly to the success of this type of consumer product. The man largely responsible for Jaguar Electronics' proposed move into manufacturing and marketing Air-flow is the company president, Mr Smith. He has spent his entire career in the electronics industry and was with Jaguar Electronics for several years before becoming its president. His reign as president has been very successful. However, he has viewed the impressive sales growth of EC units with mixed feelings. As a supplier of EC components, Jaguar Electronics has prospered from the growth in sales of products such as Airflow. However, Smith has always felt that his company was not reaping all of the benefits available in sales to the consumers. At the same time he felt that Jaguar Electronics did not have the resources to compete success- fully with the large firms that dominate the US market. Smith employed a consultant to determine where increasing consumer demand for Airflow-type products would approach a levelsufficiently high to justify entering these smaller markets. After reviewing the consultant's recommendations, Smith decided that Jaguar Electronics should target two of the higher- income countries in Latin America, Country 1 and Country 2. These nations, because of the income levels in particular cities, had the potential to be lucrative markets for Airflow. The consultant estimated the potential demand for Airflow to be 20,000 units per year in Country 1, and 40,000 units per year in Country 2. The consultant had also recommended four options available to Jaguar Electronics as to how the widgets could be produced and distributed to these markets: 1. Assemble the widgets in Charleston and distribute them from that point. 2. Assemble them in a free trade zone in Country 1, and distribute them from that point. 3. Assemble them in Country 2 (does not have free trade zone), and distribute from that point. 4. Assemble them in a free trade zone in another coun try, Country 3, which had no significant potential domestic market for Airflow, but a lower labor cost, distribute from that point. Smith held a meeting to brief his production manager, Daphne R. Feldblum, and his distribution manager, Karl Q. Winklepleck, on the proposed Airflow venture and the consultant's recommendations. Both had been with the company for several years. After briefing the two managers, Smith asked: 'What course of action would you recommend?' Feldblum replied: 'We should probably assemble them where the labor cost would be lowest.' Winklepleck commented: 'We should also consider transportation rates, insurance rates, import duties, and free trade zones.' Smith decided that Feldblum and Winklepleck should work together to compile the information necessary for making the best possible decision. Two weeks later the information shown in Tables 13.2 and 13.3 had been compiled. With the data available, Smith had a meeting with Feldblum, Winklepleck, and a member of the corporate legal staff to discuss what should be done. The meeting went poorly. Feldblum still believed that the company should locate assembly in the place with the lowest labor cost. Winklepleck realized that he should have provided a spreadsheet indicating total costs associated with each approach. The total cost figures for assembling in Charleston and Country 3 appeared to be very close. If it was possible to obtain some type of free trade area in Charleston, or if the US government could refund duty on the component MA when the finished product was exported, Charleston would actually be less expensive. In any event, figures for all of the combinations should be carefully calculated. Cost, demand, weight, and tariff data Annual demand in Country 1 20,000 units Annualdemand in Country 2 40,000 units Labor costs for assembly in Charleston in Country 1 in Country 2 free trade zone in Country 3 free trade zone $5.00/unit $4.50/unit $4.00/unit $3.75/unit Cost of components MA, FOB Brussels (Belgium) EC, FOB Charleston $25.00/unit $30.00/unit Product weight MA 60lb/unit EC 40 lb/unit 100lb/ unit Airflow Import duties as a percentage of price paid) United States Country 1 Country 2 Country 3 5% 10% 10% 25% Table 13.3 Combinedrates fortransportation and insurance between respective points (Note: Projected sales volumes would justify shippingby container load. Though shippingrates would actually be charged per container load, for ease of calculation therates beloware shown as dollar costs per hundred pounds($/cwt). If products wereshipped in less-than-container loads, rates wouldbemuch higher.) Footnote by Winklepleck: Ocean freight shipments from Belgium to Country 3 are very infrequent From Rate, $/cwt Belgium Belgium Belgium Belgium us us us Country 1 Country 2 Country 3 us Country 1 Country 2 Country 3 Country 1 Country 2 Country 3 Country 2 Country 1 Country 1 or 2 1.65 3.50 3.00 3.75 2.50 2.25 3.00 1.25 1.25 2.00 Questions 1. Calculate the total costs if the Airflow is assembled in Country 1 vs. Country 2, vs. Country 3. Note that calculations should be done for total sales to supply the two countries 2 Which country should they select to assemble the Airflow to maximize profit? 3. If the duty rate for Country 2 increases to 20%, how would this change your answer in question #2? (This case study is derived from one written by Frank C. Burinsky and Michael A. McGinnis, Shippensburg University, The company name, product and component names, overseas locations for selling the products, and shipping costs have been changed to protect the actual company name and reflect changes in trade agreements and shipping practices) Jaguar Electronics, Inc. is a specialized electronics firm located in Charleston, South Carolina in the United States. The company was founded in 1965 and has enjoyed success and modest growth as a supplier of components to large manufacturers of specialty electronic-mechanical devices. Recently the company's management has decided to begin manufacturing and marketing a product called the 'Airflow'. The Airflow is manufactured by assembling two component parts: (1) mechanical assemblies (MA), which are purchased from a company in Belgium; and (2) electronic assemblies (EC) manufactured by Jaguar Electronics at its Charleston facility. Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturers of products similar to the Airflow for several years. Most of the consumer demand for the final products comes from areas enjoying a relatively warm climate throughout the year. Accordingly, the manufacturers of those products have sold their goods with great success throughout the southern and southwestern United States. The population and economic growth in these areas have contributed greatly to the success of this type of consumer product. The man largely responsible for Jaguar Electronics' proposed move into manufacturing and marketing Air-flow is the company president, Mr Smith. He has spent his entire career in the electronics industry and was with Jaguar Electronics for several years before becoming its president. His reign as president has been very successful. However, he has viewed the impressive sales growth of EC units with mixed feelings. As a supplier of EC components, Jaguar Electronics has prospered from the growth in sales of products such as Airflow. However, Smith has always felt that his company was not reaping all of the benefits available in sales to the consumers. At the same time he felt that Jaguar Electronics did not have the resources to compete success- fully with the large firms that dominate the US market. Smith employed a consultant to determine where increasing consumer demand for Airflow-type products would approach a levelsufficiently high to justify entering these smaller markets. After reviewing the consultant's recommendations, Smith decided that Jaguar Electronics should target two of the higher- income countries in Latin America, Country 1 and Country 2. These nations, because of the income levels in particular cities, had the potential to be lucrative markets for Airflow. The consultant estimated the potential demand for Airflow to be 20,000 units per year in Country 1, and 40,000 units per year in Country 2. The consultant had also recommended four options available to Jaguar Electronics as to how the widgets could be produced and distributed to these markets: 1. Assemble the widgets in Charleston and distribute them from that point. 2. Assemble them in a free trade zone in Country 1, and distribute them from that point. 3. Assemble them in Country 2 (does not have free trade zone), and distribute from that point. 4. Assemble them in a free trade zone in another coun try, Country 3, which had no significant potential domestic market for Airflow, but a lower labor cost, distribute from that point. Smith held a meeting to brief his production manager, Daphne R. Feldblum, and his distribution manager, Karl Q. Winklepleck, on the proposed Airflow venture and the consultant's recommendations. Both had been with the company for several years. After briefing the two managers, Smith asked: 'What course of action would you recommend?' Feldblum replied: 'We should probably assemble them where the labor cost would be lowest.' Winklepleck commented: 'We should also consider transportation rates, insurance rates, import duties, and free trade zones.' Smith decided that Feldblum and Winklepleck should work together to compile the information necessary for making the best possible decision. Two weeks later the information shown in Tables 13.2 and 13.3 had been compiled. With the data available, Smith had a meeting with Feldblum, Winklepleck, and a member of the corporate legal staff to discuss what should be done. The meeting went poorly. Feldblum still believed that the company should locate assembly in the place with the lowest labor cost. Winklepleck realized that he should have provided a spreadsheet indicating total costs associated with each approach. The total cost figures for assembling in Charleston and Country 3 appeared to be very close. If it was possible to obtain some type of free trade area in Charleston, or if the US government could refund duty on the component MA when the finished product was exported, Charleston would actually be less expensive. In any event, figures for all of the combinations should be carefully calculated. Cost, demand, weight, and tariff data Annual demand in Country 1 20,000 units Annualdemand in Country 2 40,000 units Labor costs for assembly in Charleston in Country 1 in Country 2 free trade zone in Country 3 free trade zone $5.00/unit $4.50/unit $4.00/unit $3.75/unit Cost of components MA, FOB Brussels (Belgium) EC, FOB Charleston $25.00/unit $30.00/unit Product weight MA 60lb/unit EC 40 lb/unit 100lb/ unit Airflow Import duties as a percentage of price paid) United States Country 1 Country 2 Country 3 5% 10% 10% 25% Table 13.3 Combinedrates fortransportation and insurance between respective points (Note: Projected sales volumes would justify shippingby container load. Though shippingrates would actually be charged per container load, for ease of calculation therates beloware shown as dollar costs per hundred pounds($/cwt). If products wereshipped in less-than-container loads, rates wouldbemuch higher.) Footnote by Winklepleck: Ocean freight shipments from Belgium to Country 3 are very infrequent From Rate, $/cwt Belgium Belgium Belgium Belgium us us us Country 1 Country 2 Country 3 us Country 1 Country 2 Country 3 Country 1 Country 2 Country 3 Country 2 Country 1 Country 1 or 2 1.65 3.50 3.00 3.75 2.50 2.25 3.00 1.25 1.25 2.00 Questions 1. Calculate the total costs if the Airflow is assembled in Country 1 vs. Country 2, vs. Country 3. Note that calculations should be done for total sales to supply the two countries 2 Which country should they select to assemble the Airflow to maximize profit? 3. If the duty rate for Country 2 increases to 20%, how would this change your answer in question #2
