Genesis Computers assembles and sells inexpensive laptop computers from industry standard parts which are generally purchased from the lowest bidder. Its strategy is to avoid direct competition with major producers such as Dell and Hewlett-Packard by targeting its product at budget-conscious individual consumers and small businesses. Genesis Computers also promotes and sells its products only through the Web in order to keep marketing costs low and to avoid head-to-head competition with major retail outlets such as Fry's and Best Buy. As a result, most of its sales are made one unit at a time. A laptop is not assembled until after the order is received in order to minimize inventory and obsolescence cost. Each completed laptop is then shipped by UPS from the assembly plant directly to the customer. Genesis Computers currently operates four assembly plants, all of which are located in the Southern U.S. and Mexico because of relatively low labor costs. Genesis Computers has built its reputation on shipping all orders in a week or less. So, if the company does not have enough overall internal capacity to fulfill an order in any given week, it will subcontract out the assembly task to a small electronics company near Asheville. On short notice the subcontractor picks up parts at the Ashville plant and then transports the assembled computers back to the Ashville plant for shipment to the customer. The short notice requirement expected of the subcontractor makes this option very expensive at $185 per computer. This cost can be treated as the subcontractor's labor charge for analysis purposes, however, it also covers his overhead, cost of picking up parts and delivering assembled computers to the Ashville plant. It also covers his profit margin. But it does not include the cost of the parts or the shipping cost to the customer, both of which are paid for by Genesis Computers. The company uses the subcontractor even though it loses money on every laptop they assemble because it knows its reputation will be damaged if it cannot fulfill all customer orders on a timely basis. The four plants and the subcontractor with their average operating costs and capacities are as follows. The subcontractor capacity is whatever is necessary to meet demand. Fixed cost $/week Capacity units/week Assembly labor cost $/unit 17 14 1,500 Parts cost, $/unit (including inbound transportation cost) 375 360 350 320 375 Asheville, NC Meridian, MS Round Rock, TX Guadalajara, Mexico Subcontractor 1,000 125,000 60,000 240,000 120,000 18 2,500 2,000 10 185 For marketing and accounting purposes, the company has divided the U.S. market into six geographic regions. These regions along with their average selling prices and forecasted weekly demand levels are as follows: North East (NE) South East (SE) North Central (NC) South Central (SC) North West (NW) South West (SW) Selling price $/unit 550 450 500 525 475 500 Demand units/week 1.200 1,100 1,400 1.000 1,300 1,500 Average UPS shipping costs, in dollars per unit, from any of the assembly plants (and the subcontractor) to any market area are as shown below. The shipping costs are included free to the customer. SE 11 12 1 From/TO Asheville Meridian Round Rock Guadalajara Subcontractor N E 17 18 20 32 17 NC 18 19 19 33 18 SC 16 115 13 25 16 NW 23 21 22 31 23 SW 21 20 17 24 21 18 30 11 Copy the three tables, above, into an Excel worksheet. This document is available on Blackboard. On the same worksheet create a table like the one below to compute contribution per laptop from each plant and the subcontractor to each market area. NE SE NC SC NW SW Asheville Sales Labor cost Parts cost Transportation Contribution Meridian Sales Labor cost Parts cost Transportation Contribution Round Rock Sales Labor cost Parts cost Transportation Contribution Guadalajara Sales Labor cost Parts cost Transportation Contribution Subcontractor Sales Labor cost Parts cost Transportation Contribution Genesis Computers assembles and sells inexpensive laptop computers from industry standard parts which are generally purchased from the lowest bidder. Its strategy is to avoid direct competition with major producers such as Dell and Hewlett-Packard by targeting its product at budget-conscious individual consumers and small businesses. Genesis Computers also promotes and sells its products only through the Web in order to keep marketing costs low and to avoid head-to-head competition with major retail outlets such as Fry's and Best Buy. As a result, most of its sales are made one unit at a time. A laptop is not assembled until after the order is received in order to minimize inventory and obsolescence cost. Each completed laptop is then shipped by UPS from the assembly plant directly to the customer. Genesis Computers currently operates four assembly plants, all of which are located in the Southern U.S. and Mexico because of relatively low labor costs. Genesis Computers has built its reputation on shipping all orders in a week or less. So, if the company does not have enough overall internal capacity to fulfill an order in any given week, it will subcontract out the assembly task to a small electronics company near Asheville. On short notice the subcontractor picks up parts at the Ashville plant and then transports the assembled computers back to the Ashville plant for shipment to the customer. The short notice requirement expected of the subcontractor makes this option very expensive at $185 per computer. This cost can be treated as the subcontractor's labor charge for analysis purposes, however, it also covers his overhead, cost of picking up parts and delivering assembled computers to the Ashville plant. It also covers his profit margin. But it does not include the cost of the parts or the shipping cost to the customer, both of which are paid for by Genesis Computers. The company uses the subcontractor even though it loses money on every laptop they assemble because it knows its reputation will be damaged if it cannot fulfill all customer orders on a timely basis. The four plants and the subcontractor with their average operating costs and capacities are as follows. The subcontractor capacity is whatever is necessary to meet demand. Fixed cost $/week Capacity units/week Assembly labor cost $/unit 17 14 1,500 Parts cost, $/unit (including inbound transportation cost) 375 360 350 320 375 Asheville, NC Meridian, MS Round Rock, TX Guadalajara, Mexico Subcontractor 1,000 125,000 60,000 240,000 120,000 18 2,500 2,000 10 185 For marketing and accounting purposes, the company has divided the U.S. market into six geographic regions. These regions along with their average selling prices and forecasted weekly demand levels are as follows: North East (NE) South East (SE) North Central (NC) South Central (SC) North West (NW) South West (SW) Selling price $/unit 550 450 500 525 475 500 Demand units/week 1.200 1,100 1,400 1.000 1,300 1,500 Average UPS shipping costs, in dollars per unit, from any of the assembly plants (and the subcontractor) to any market area are as shown below. The shipping costs are included free to the customer. SE 11 12 1 From/TO Asheville Meridian Round Rock Guadalajara Subcontractor N E 17 18 20 32 17 NC 18 19 19 33 18 SC 16 115 13 25 16 NW 23 21 22 31 23 SW 21 20 17 24 21 18 30 11 Copy the three tables, above, into an Excel worksheet. This document is available on Blackboard. On the same worksheet create a table like the one below to compute contribution per laptop from each plant and the subcontractor to each market area. NE SE NC SC NW SW Asheville Sales Labor cost Parts cost Transportation Contribution Meridian Sales Labor cost Parts cost Transportation Contribution Round Rock Sales Labor cost Parts cost Transportation Contribution Guadalajara Sales Labor cost Parts cost Transportation Contribution Subcontractor Sales Labor cost Parts cost Transportation Contribution