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COST STRUCTURE In 2012, Hostess Brands files for bankruptcy protection in the United States (US). In order to save the business, the company had to

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COST STRUCTURE In 2012, Hostess Brands files for bankruptcy protection in the United States (US). In order to save the business, the company had to implement several operational changes to increase its profits dramatically. Some of the changes include: Business Model Old Demography-mainly focused on parents shopping for school lunches. New Demography-nostalgic young males aged 18 to 34 years old. Operating Model Its new owner, Apollo Global Management and Metropoulos & Co. bought only five of the more than forty factories up for sale. The purchased factories were believed to be strategically-located with sufficient capacity to produce its product lines with reduced stock-keeping units (SKUS). Labor Union 18,000 members from its unionized workers were fired. The overly complex and large collective bargaining agreements (CBAs) placed burdens on operations. Two key issues were 1. The workers were wary (distrustful) of new formulations that might reduce their working hours and re-stocking trips 2. The workers had large pensions that were weighing-down on the company's Statement of financial position Distribution The company switched from a Direct Store Delivery Model (suing around 5.000 over truck routes with 5,000 company trucks to deliver directly to thousands of individual stores) to Hostess Direct Model (shipping from only five factories to few centralized warehouses across the country). The change in demographic target market has refocused the distribution from grocery stores to convenience stores. Required: Based on the Hostess Brands' business turnaround case study, answer the following questions: a) Why is cost structure important to the sustainability of the company? (10 marks) b) Describe how the implemented changes have affected the cost structure of the company? Analysis must be explained in terms of cost behavior (t.e. variable, fixed or mixed) (10 marks)

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