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Earth Baby, Inc. (EBI) recently celebrated its 10th anniversary. The company produces organic baby products for healthconscious parents. These products include food, clothing, and toys.
Earth Baby, Inc. (EBI) recently celebrated its 10th anniversary. The company produces organic baby products for healthconscious parents. These products include food, clothing, and toys. Earth Baby has recently introduces a new line of premium organic baby foods. Extensive research and scientific testing indicate that babies raised on the new line of foods will have substanital health benefits. EBl is able to sell its products at prices higher than those charged by its competitors because of its excellent reputation for superior products. EBl distributes its products through highend grocery stores, pharmacies, and specialty retail baby stores. ioan Alvarez, the founder and CEO of EBI, recently received a proposal from an old business school classmate, Robert Bradley, the vice president of Great Deal, Inc. (GUI), .2 large discount retailer. Mr. Bradley proposes a joint venture between his company and EBl, citing the growing demand for organic products and the superior distribution channels of his organization. Under this venture EBI would make some minor modifications to the manufacturing process of some of its bestselling baby foods and the foods would then be packaged and sold by GDI. Under the agreement EBI would receive $3.10 per jar of baby food and would provide GDI a limited right to advertise th: product as manufactured for Great Deal by EBI. Joan Alvarez set up a meeting with Fret Stanley, Earth Baby's CFO, to discuss the profitability of the joint venture. Mr. Stanley made some initial calculations and determined that the direct materials, direct labor, and other variable costs needed for the the GDI order would be about $2 per unit as compared the full cost of $3 (material, labor, and overhead} for the equivalent EBI product. Should Earth Baby Inc. accept the proposed venture from GDI? Why or why not
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