Exhibit 1

Existing Cost Structure and Capacity Provided and Used and the Needs of the New Product, the WLRM

Current cost, cost drivers and utilization of resources by Taylors Reduction Improvement Machines Inc. for production of the current product lines, (without the WLRM) are as follows:

Practical Capacity Capacity

Activity Cost cost Driver of Resources used

Handling Material $ 200,000 # of moves 12,500 10,000 Setting up Equipment $1,200,000 set up hours 12,000 10,000

Designing Processes and Products $ 180,000 types of products 12 8

Designing Packaging $ 240,000 types of products 12 8

Machining the Product $ 360,000 machine hours 300,000 240,000

Direct Labor $ 600,000 direct labor hours 20,000 18,500

Maintenance Detail

Employees	2
Annual Salaries and Fringe	$45,000	$ 90,000
Supplies		$20,000
Total Cost of Maintenance		$110,000

Maintenance Cost is traced to activities based on maintenance hours

Friday meeting results:

In the meeting on Friday, Chris shared the results of her study of the resource needs for making 10,000 units of the WLRM. The Marketing Team has just informed you that their original projections for sales for the Waist Line

Reduction Machine were understated. Based on the new surveys, the potential marke t is for at least 10,000 units annually for a minimum of two years. There is evidence that the market could last longer depending on the response of

TRIMs competitors to the new machine. TRIM would be first to the market with this new equipment.

In addition, TRIM Inc. also has the opportunity to begin production on another exercise machine. Chris, Ed and Montgomery worked together to determine how many Bicep Builders, BBs, they could sell and at what price. This product, the Bicep Builder, promises to increase muscle mass while decreasing underarm fat significantly in one month if used only 15 minutes every other day.

The cost to produce the Bicep Builder and the capacity needed to produce it appears below. After testing the market TRIM Inc. believes that it can sell 20,000 units if the price is $50.00 per unit. The market for the Bicep Builder, (BB), is equivalent in composition and duration to that for the Waist Line Reduction Machine, (WLRM). The BB market is expected to last for a minimum of two years and dependent on the response of the competitors, could last for another two to five years at significant volumes. It is even projected that the sales volume could dramatically increase if the results across the user population equal the results to date in the test market.

The projected resource needs for the WLRM and the BB and its sales price and volume is included in Exhibit 3. Detail on the Cost of Purchasing New Capacity is presented in Exhibit 4.

Exhibit 3

Projected needs of the New Products

Product WLRM WLRM BB

Volume in Units 7,500 10,000 20,000

Handling Material	# of moves	938*	1,250	500
Setting up Equipment	set up hours	1,875	2,500	1,000
Designing Processes and Products	types of products	1	1	1
Designing Packaging	types of products	1	1	1
Machining the Product	machine hours	26,250	35,000	30,000
Direct Labor	direct labor hours	1,500	2,000	4,000

Handling Material	units per move	8.0	8.0	40.0
Setting up Equipment	hours per move	2.0	2.0	2.0
Designing Processes and Products	per product line	1.0	1.0	1.0
Designing Packaging	per product line	1.0	1.0	1.0
Machining the Product	Machine hours per unit	3.5	3.5	1.5
Direct Labor	Direct Labor Hours per unit	0.2	0.2	0.2

Material cost	per unit	$60.00	$60.00	$15.00
Labor Cost	per hour	$30.00	$30.00	$30.00
Sales Price	per unit	$100.00	$100.00	$50.00

*: Given 8 units per move, total moves required to produce 7,500 units of WLRM are 937.5; however, it is impractical to have half move; therefore, it is 938. However, the total setup hours is 937.5 x 2 = 1,875.

Exhibit 4

Detail on the Cost of Purchasing New Capacity

capacity for the Cost for the

Activity cost driver next Step Next Step*

Handling Material # of moves 5,000 $ 40,000 Setting up Equipment set up hours 1,500 $ 200,000 Designing Processes and Products types of products 6 $ 90,000 Designing Packaging types of products 6 $ 125,000 Machining the Product machine hours 16,000 $ 25,000 Direct Labor direct labor hours 2,000 $ 60,000

* Each separate step must be purchased in its entirety if more capacity is needed. For example, if extra material handling is needed, the entire

5,000 moves must be purchased for $40,000.

Requirements:

Based on the projections in Exhibits 1 4 for the total resource utilization of the WLRM and the BB products on their preexisting equipment, TRIM Inc. management is still trying to determine if the new exercise equipment should be produced.

Determine the Target Cost for the Waist Line Reduction Machine.

Determine what TRIM should do. Should they:

Make 7,500 WLRMs?

Make 10,000 WLRMs?

Make 20,000 BBs?

Make the full demand for both the Bicep Builder (20,000

units) and the Waist Line Reduction Machine (10,000 units).

Build the full demand for the Bicep Builder (20,000 units) and the original lower volume for the Waist Line Reduction Machine (7,500 units).

Make some combination of the volumes of the WLRM and the BB based on a profit maximizing methodology.

For each alternative in (b) include the impact on TRIMs profit. Rank the alternatives and indicate your choice. Be sure to explain the rationale behind your choice.

What additional information would you like before making a

decision about adding these new products?

How would you track the success of this or any new

product line or lines?

How would you monitor production?

What information would sales need in order to promote

the optimal level of product sales?

What would you like to know about the pre-existing product lines? How might this information change your previous responses?