Case Study: Montreal Maple Syrups Expansion into Japan Background: Montreal Maple Syrup (MMS) is a successful Canadian maple syrup producer with annual sales of $8 million CAD. Exports account for half of their annual sales, with $3 million going to the US and $1 million to the UAE. MMS is considering expanding its export operation into Japan, a market with a potential value of $C2,000,000 annually within three years. Objective: MMS's VP of International Operations, Patrick Roy, has a tentative deal with Japanese food importer, Shoku International Corp (SIC), for an initial purchase order of 12,000 - 250ml bottles of maple syrup. The deal will lead to minimum annual purchases of 45,000,000 JPY if successful. SIC's purchase order: Shuko International Corp. Purchase Order Date January 1st, Year 1 Purchase from: Montreal Maple Syrup 500 Cases 24 x 250 ml bottles Maple Syrup Shipping: Cost, Insurance & Freight (CFI) Port of Tokyo. Note Exporter will pay Japanese Import Duties. Delivery: On or before March 31, 2023. Late Deliveries will not be accepted. Terms: On open account. 60 days terms from date delivery to Port of Tokyo. 15,000 JPY Total Due 7,500,000 JPY SIC would sell the syrup though it's wholesale division for 21,600 JPY per case of 24-250 ml bottles to Its retail customers (grocery stores and markets), who would sell the individual bottles to the end consumer for 1,200 JPY. Shuko International Corp LS a well-established Japanese food Importer. They specialize in the import of specialty food products. The company is one of the largest Importer of food from North America. SIC has an extensive customer base and are known to excel in bringing new product to the Japanese market. They have a solid financial trade record, Including paying their suppliers on time. MMSs Costs: After some analysis, the following costs were determined: Production: $C2.75 per 250ml bottle, including bottle and label, packaged in case of 24, ready for export to Japan. Needed services to export to Japan. Costs are as follows: Shipping costs and other related costs (for 12,000 bottles, 500 cases): Shipping costs and other related costs amount to $C6,800 for 12,000 bottles including all related costs (shipping, handling, freight, insurance, documentation, etc.), not including the 14.3% duty on syrup being imported into Japan (calculated on raw production costs done outside of Japan). MMS's first-year costs, including one-time market development costs, are estimated at $C250,000. After the first year, MMSs ongoing SG&A expenses are estimated to be $C200,000 per year, if the companys export volume to Japan is 45,000,000 JPY and 100,000,000 JPY. Currency Exchange Rates: 1 CAD = 91.31 JPY 1 JPY = 0.011 CAD 1 CAD = 0.8037 USD 1 USD = 1.24 CAD 1 USD = 113.67 JPY Questions: 1. Calculate MMS's cost per unit (case of 24) to produce the exported syrup (in both CAD and JPY). Correct calculation and presentation of cost per unit in CAD (5 points) Correct calculation and presentation of cost per unit in JPY (5 points) 2. Produce a simple income statement (in CAD) for MMS if they only sell the initial order and then cease exports to Japan. Correctly lists all relevant revenue and expense items (Cost of Goods Sold, Marketing & Development Expenses), gross profit, and net income (5 points) Accurate calculations for each item (3 points) Clear and concise presentation (2 points) 3. Produce a simple income statement (in CAD) for MMS if they export 45,000,000 JPY of syrup to Japan in the first year. Correctly lists all relevant revenue and expense items (Cost of Goods Sold, SG&A expenses), gross profit, and net income (5 points) Accurate calculations for each item (3 points) Clear and concise presentation (2 points) 4. Discuss the currency risk for MMS and how they can mitigate the risk. Clear explanation of currency risk for MMS (4 points) Discussion of the impact of currency fluctuations (3 points) Suggestions for mitigating the risk (3 points) 5. Evaluate the buyer's requested 60-day payment terms and suggest counteroffers if necessary. Thorough evaluation of the 60-day payment terms (3 points) Explanation of the potential risks (2 points) Suggestions for counteroffers (if necessary) and rationale (5 points) 6. Discuss the advantages and disadvantages of using FOB Port of Montreal as the incoterm. Clear explanation of FOB Port of Montreal (4 points) Discussion of the advantages (3 points) Discussion of the disadvantages (3 points) 7. Suggest cost-saving strategies MMS could explore to counteract a potential price decrease. Relevant cost-saving strategies (4 points) Clear explanation and rationale for each strategy (4 points) Feasibility and potential impact of the strategies (2 points