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Help on any of these questions would be very helpful and much appreciated!! You work as a supply chain manager for Primo Caf Inc. Primo
Help on any of these questions would be very helpful and much appreciated!!
You work as a supply chain manager for Primo Caf Inc. Primo Caf is a small-sized manufacturer of stylish coffee makers. The company has three distinct coffee makers that it produces. The Bean Boiler is Primo Caf's most basic model. The main materials used in manufacturing the Bean Boiler are aluminum and plastic. There are lots of suppliers for these materials. At present, Primo Caf's total cost for producing a Bean Boiler is $13 per unit and the product is competitively priced at $20 per unit. There are lots of other coffee makers that are very similar to the Bean Boiler on the market. Still, sales of the Bean Boiler are very stable. The company reliably sells 24,625 to 25,375 units of this product per month. The Family Man is Primo Caf's mid-market offering. Primo Caf manufactures most of the Family Man in-house, but buys the glass pot and the electronics that control the on/off function and the timer. At present, final assembly of the in-house manufactured parts and the purchased sub-components occurs at Primo Caf's facility in Grand Rapids. Total cost for producing the Family Man is currently $32 per unit and each unit is sold for $34.99. The Family Man's sleek, artistic design and range of unique colors helps to distinguish it from a wide selection of similar products offered by competitors. Prices for direct competitors range from $25 to $45. Sales of the Family Man range from 19,400 to 20,600 units per month. bu The Caffissimo is Primo Caf's high-end offering. Primo Caf produces the external casing for the Caffissimo in-house, but buys all of the important sub-components from external suppliers. The most important sub-components for the Caffissimo are the gauges that regulate the temperature and pressure of the water as it is forced through the coffee grounds. The proper working of these gauges ensure that the Caffissimo produces a perfect cup of coffee at brewing. The Caffissimo's design is a closely held company secret. The machine has won industry awards both in terms of its coffee making process and its external looks. Currently, the Caffissimo costs $375 to produce and sells for $600. Because of the relatively high price and unique design, demand for the Caffissimo is difficult to predict. Over the past year, demand has ranged from 8,500 to 11,500 units per month. QUESTION #1 Primo Caf Inc. has been doing well. Revenue from its three lines of coffee makers now exceeds $3 million dollars a year. In fact, things have been going so well that lise, the company's innovative CEO and founder, has decided Primo Caf should offer its own brand of coffee beans. Gianna, the chief marketing officer, has already come up with a name - Primo's Premium Coffee - and estimates the company can sell 8,000-10,000 pounds of coffee per month at $25 per pound Apply the total cost framework presented in class to complete the questions below. Complete all calculations in the excel file you will upload with your exam. 1. Based on this information, provide a complete total cost analysis for each supplier. 2. What is the cost per pound from each supplier? There's only one thing left to do find a supplier for the coffee beans. Marco, the coo and your boss, has given you the task of finding a supplier and you've narrowed the field to two candidates: African Coffee Unlimited LLC., located in Uganda, and South American Espresso Company, located in Colombia 3. Choose three additional variables to include in your total cost model. a. Explain why you think these costs are relevant to include in the analysis. b. Create a second total cost model for each supplier that incorporates these additional variables. You've come up with the following cost information for both suppliers. 4. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? African Coffee Unlimited SA Espresso Company Price $0.92/pound $0.68/pound Shipping to port of export $9,500/container $465/pallet Ocean freight $136/pallet $10,000/container Trucking Costs $.00054/pound/mile $.00071/pound/mile Duties on imports are going to be 10% of the price for both suppliers. African Coffee Unlimited will be shipping to the Port of Long Beach in California, where port handling fees are 18% of the price of a container. Once the beans are offloaded in California, they will be transported via truck 2,190 miles to Primo's Grand Rapids facility. South American Espresso Company will be shipping to the Port of Charleston in South Carolina, where port handling fees are 22% of the price of a container. Once the beans are offloaded in South Carolina, they will be transported via truck 955 miles to Primo's Grand Rapids facility. Primo's warehousing costs in Grand Rapids will be the same for both - $50 per pallet. You also know that for a standard product like coffee, there are 250 pounds of coffee per pallet and 275 pallets per container. QUESTION #2 Primo Caf sources electronics that control the on/off function and the timer on the Family Man from California Tech Inc. The old design for these electronics had created a bottleneck, forcing Primo Caf to use California Tech Inc. However, a new design has brought the electronics in line with industry standards, opening up the possibility of many new suppliers for this item. Apply the cost plus (should cost) framework presented in class to complete the questions below. Complete all calculations in the excel file that you will upload with your exam. 1. Based on this information, provide a complete cost plus analysis for each supplier that appropriately accounts for tooling costs - but leaves all other elements of the cost plus model the same. As of yesterday, California Tech charged Primo Caf $3 per unit. But today, California Tech called Marco to tell him that the new design would require $0.50 in tooling costs for each item and therefore they needed to increase their sell price to $4.15. 2. Create a second cost plus analysis for each supplier that appropriately accounts for tooling costs - and makes any other adjustments that you think are relevant. You have the following unit cost information for electronics from California Tech Inc. from yesterday. You also have the following information from a potential new supplier, Boston Electric Company. Boston Electric has said they would be willing to sell you the electronics for $4.16 per unit. 3. What might be an appropriate range of best and worst prices that you would want to consider when negotiating price with each supplier? 4. Marco wants a recommendation on what Primo Caf should do. Given the information above- and what you know about the product you are sourcing - what would you recommend? Why? California Tech DM $ 0.300 DL $ 0.550 OH $ 0.650 COGS $ 1.500 SG&A $ 0.150 TC $ 1.650 Profit $ 2.310 Sell Price $ 3.960 Boston Electric DM $ 0.350 DL $ 0.650 OH $ 1.300 Tooling $ 0.200 COGS $ 2.500 SG&A $ 0.250 TC $ 2.750 Profit $ 1.375 Sell Price $ 4.125 You know the average overhead rate for this industry should be 120% and the average profit margin on these kinds of items should be around 50%, although not all suppliers apply these rates Marco likes California Tech Inc. because they have been willing to accommodate changes in demand. California Tech has also had an excellent track record in terms of getting the electronics to Primo Caf on time. Marco doesn't know much about Boston Electric except for the cost information above and he is somewhat hesitant to make the switch to an unknown supplier for this part. QUESTION #3 Primo Caf is thinking about outsourcing production of the Bean Boiler. Currently, the cost of producing the Bean Boiler in-house is $13 per unit. You have found a supplier - Legit Mfg LLC - who can produce the Bean Boiler at $12.50 per unit. Legit Mfg has the capacity to produce the Bean Boiler in large volumes (30,000 units per production run). Primo Caf sells up to 304,500 Bean Boilers per year so your plan is to buy 300,000 units from Legit Mfg and make any additional units in-house. Legit Mfg quotes you a contract price of $3,450,000 for 300,000 units based on the following cost information. DL OH 50% Legit Manufacturing LLC DM $ 1.120 $ 6.590 $ 3.295 Tooling $ 0.050 COGS $ 11.055 SG&A $ 1.106 TC $ 12.161 Profit $ 0.365 Sell Price $ 12.530 10% 3% You know that Legit Mfg will have to retrain their employees to accommodate production of the Bean Boiler as well as retool some of their existing machinery. But having seen the Bean Boiler produced in-house - you also know that once employees learn the new process, production becomes relatively standardized after the first run. Based on this knowledge, you believe that Legit Mia's cost model needs to be adjusted in a few ways: The product price should be calculated without tooling cost and should reflect an 70% learning curve. After calculating the product price per unit for each run the tooling cost should be added back in to arrive at a total price per unit for each run. Adjust the given cost plus model and then apply a learning curve as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? Question #4 Primo Caf has been purchasing aluminum castings from BJS PT for many years. Two years ago, on a weekend morning, Marco received an emergency call from a salesman for BJS. Its factory in Indonesia was on fire! Employees and firemen had been killed during the incident, and there was significant damage. BJS had been an excellent supplier to Primo Caf and the loss of BJS would have severely impacted Primo Caf's operations and profits. The salesman understood Primo Caf's reliance on BJS and stated that "BJS will do everything possible to keep from shutting down your company." Indeed, BJS met its commitment. BJS quickly moved production to a qualified factory in Singapore, while it rebuilt the Indonesia plant. During the transition to Singapore, BJS air shipped product to Primo Caf and BJS paid the additional cost of air shipment (normally, product is shipped by ocean freight at Primo Caf's cost). Primo Caf-owned tooling in Indonesia estimated at $250,000 was destroyed in the fire. Using its own money, BJS built new tools for parts that were in production to meet Primo Caf's unit demand. While there were anxious moments during the transition, fortunately, Primo Caf did not miss any customer commitments, and, other than the additional staff hours working through the transition with BJS, there were no additional costs for Primo Caf. Fast forward to today. Primo Caf's legal team is performing a tooling audit. The audit is meant to confirm the status of Primo Caf-owned tools that are located with suppliers. Primo Caf's legal team has sent you a list of tools to check, including $250,000 of tools at BJS. After contacting BJS, you discover that some of the tools are no longer in service because they were destroyed in the fire two years ago. More specifically, you find that BJS rebuilt $150,000 of the tooling in Singapore to meet Primo Caf's production requirements at the time of the fire. However, an additional $100,000 of the tooling was not rebuilt, since parts produced from those tools were from old product designs and no longer used by Primo Caf. Marco wants a recommendation on what Primo Caf should do. Applying the ethical framework presented in class, complete the following. Include a discussion from at least 2 of the 5 approaches. 1. Step 1 - Recognize an Ethical Issue a. Is this an ethical issue? Provide a detailed explanation for your reasoning. 2. Step 2 - Get the Facts: Answer the following questions: a. What are the relevant facts of the case? b. What facts are not known? C. What individuals/groups have an important stake in the outcome? d. Are the concerns of some individuals/groups more important than others? Why? e. Do you know enough to make a decision at this point? Why or why not? 3. Step 3 - Develop Options a. Describe three potential courses of action that you and Marco could take b. For each potential course of action, describe the potential outcomes for the individuals/groups involved 4. Provide a proposed recommendation to Marco The legal team states that by contract BJS must maintain tooling in good condition for 15 years, regardless if the tools are used or not. The legal team states that by contract BJS owes Primo Caf $100,000 the value of the tools destroyed but not rebuilt. Legal is demanding payment! QUESTION #5 Primo Caf has long relationship with Techno-Gadgets Limited to produce the temperature and pressure gauges that go into the Caffissimo. However, Techno-Gadgets recently underwent an ownership change and since then the quality of their products has declined. lise. Primo's CEO and founder, is in negotiations with Techno-Gadgets to resolve the issue, but in the meantime, you have been tasked with looking for new potential suppliers. Your search has lead you to two overseas companies: Tokyo Teshtonics Inc. and Allesgute Engineering GmbH. Tokyo Tectonics Inc. is located in Japan and quotes you price of 12.00 (15 Japanese Yen) per gauge. Allesgute Engineering GmbH is located in Germany and quotes you a price of 12.00 (15 Euro) per gauge. In order to help determine which company has the best cost structure, you have collected the following information Current USD/JPY exchange rate: $1 = \1.50 Expected USD/JPY exchange rate in six months: $1 = 1.20 Current USD/EUR exchange rate: $1 = 0.8 Expected USD/EUR exchange rate in six months: $1 = 1.20 Additional Costs Tokyo Tectonics Inc. Shipping to port of export Ocean freight Duties on imports Transportation to warehouse $ 4.25 $ 30.25 $ 1.50 $ 3.75 Allesgute Engineering GmbH $ 5.30 $ 27.50 $ 1.80 $ 3.00 Marco wants to move quickly and lock up a contract with Allesgute Engineering immediately. lise is inclined to give Techno-Gadgets six months to resolve its issues. At that point, she is interested in inking a deal with Tokyo Tectonics. Apply exchange rate calculations as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Calculate the current and future total cost for each supplier in USD. 2. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? QUESTION #6 Gianna, Primo's Chief Marketing Officer, and Marco, the Chief Operating Officer, are arguing over the fate of the Bean Boiler. The Bean Boiler is Primo Caf's most basic model. It is competitively priced at $20 per unit and the company reliably sells 25,000 units per month. Fixed annual costs and variable costs for the Bean Boiler are presented below. Gianna sees the Bean Boiler as a loser. There are lots of competitors that are rapidly eating into Primo's market share - and although sales have been stable, the company's best projections are that Bean Boiler sales volume will decline by 25% year-on-year over the next five years. Gianna wants to pull company resources from the Bean Boiler now and invest immediately in a new product - a French press she's designed called the Brassage Frais. Marco is not convinced. From manufacturing perspective, producing 25,000 Bean Boilers a month is easy. Plus - given its current cost structure and demand volume - the Bean Boiler pulls in about $6,000,000 in profits per year. Marco doesn't see why the company should give up those profits for an unproven product like the Brassage Frais. And while Marco concedes there's nothing special about Primo's production process - other companies make essentially the same product in the same way - Marco is convinced it is cheaper to produce in-house than outsource. In fact, when Marco asked you to find a potential outsourced supplier for production of the Bean Boiler, the best price you could find was $14.00 per unit (previous negotiations with Legit Mfg from Q3 fell through and the company has since gone out of business). In-House (Cost to Make) Direct Materials $2.00 Direct Labor $5.00 Variable Mfg Overhead $5.00 Total Variable Costs Per Unit $12.00 Fixed Annual Mfg Overhead $300,000 Outsource (Cost to Buy) Price Per Unit $14.00 Apply the make-buy framework as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? You work as a supply chain manager for Primo Caf Inc. Primo Caf is a small-sized manufacturer of stylish coffee makers. The company has three distinct coffee makers that it produces. The Bean Boiler is Primo Caf's most basic model. The main materials used in manufacturing the Bean Boiler are aluminum and plastic. There are lots of suppliers for these materials. At present, Primo Caf's total cost for producing a Bean Boiler is $13 per unit and the product is competitively priced at $20 per unit. There are lots of other coffee makers that are very similar to the Bean Boiler on the market. Still, sales of the Bean Boiler are very stable. The company reliably sells 24,625 to 25,375 units of this product per month. The Family Man is Primo Caf's mid-market offering. Primo Caf manufactures most of the Family Man in-house, but buys the glass pot and the electronics that control the on/off function and the timer. At present, final assembly of the in-house manufactured parts and the purchased sub-components occurs at Primo Caf's facility in Grand Rapids. Total cost for producing the Family Man is currently $32 per unit and each unit is sold for $34.99. The Family Man's sleek, artistic design and range of unique colors helps to distinguish it from a wide selection of similar products offered by competitors. Prices for direct competitors range from $25 to $45. Sales of the Family Man range from 19,400 to 20,600 units per month. bu The Caffissimo is Primo Caf's high-end offering. Primo Caf produces the external casing for the Caffissimo in-house, but buys all of the important sub-components from external suppliers. The most important sub-components for the Caffissimo are the gauges that regulate the temperature and pressure of the water as it is forced through the coffee grounds. The proper working of these gauges ensure that the Caffissimo produces a perfect cup of coffee at brewing. The Caffissimo's design is a closely held company secret. The machine has won industry awards both in terms of its coffee making process and its external looks. Currently, the Caffissimo costs $375 to produce and sells for $600. Because of the relatively high price and unique design, demand for the Caffissimo is difficult to predict. Over the past year, demand has ranged from 8,500 to 11,500 units per month. QUESTION #1 Primo Caf Inc. has been doing well. Revenue from its three lines of coffee makers now exceeds $3 million dollars a year. In fact, things have been going so well that lise, the company's innovative CEO and founder, has decided Primo Caf should offer its own brand of coffee beans. Gianna, the chief marketing officer, has already come up with a name - Primo's Premium Coffee - and estimates the company can sell 8,000-10,000 pounds of coffee per month at $25 per pound Apply the total cost framework presented in class to complete the questions below. Complete all calculations in the excel file you will upload with your exam. 1. Based on this information, provide a complete total cost analysis for each supplier. 2. What is the cost per pound from each supplier? There's only one thing left to do find a supplier for the coffee beans. Marco, the coo and your boss, has given you the task of finding a supplier and you've narrowed the field to two candidates: African Coffee Unlimited LLC., located in Uganda, and South American Espresso Company, located in Colombia 3. Choose three additional variables to include in your total cost model. a. Explain why you think these costs are relevant to include in the analysis. b. Create a second total cost model for each supplier that incorporates these additional variables. You've come up with the following cost information for both suppliers. 4. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? African Coffee Unlimited SA Espresso Company Price $0.92/pound $0.68/pound Shipping to port of export $9,500/container $465/pallet Ocean freight $136/pallet $10,000/container Trucking Costs $.00054/pound/mile $.00071/pound/mile Duties on imports are going to be 10% of the price for both suppliers. African Coffee Unlimited will be shipping to the Port of Long Beach in California, where port handling fees are 18% of the price of a container. Once the beans are offloaded in California, they will be transported via truck 2,190 miles to Primo's Grand Rapids facility. South American Espresso Company will be shipping to the Port of Charleston in South Carolina, where port handling fees are 22% of the price of a container. Once the beans are offloaded in South Carolina, they will be transported via truck 955 miles to Primo's Grand Rapids facility. Primo's warehousing costs in Grand Rapids will be the same for both - $50 per pallet. You also know that for a standard product like coffee, there are 250 pounds of coffee per pallet and 275 pallets per container. QUESTION #2 Primo Caf sources electronics that control the on/off function and the timer on the Family Man from California Tech Inc. The old design for these electronics had created a bottleneck, forcing Primo Caf to use California Tech Inc. However, a new design has brought the electronics in line with industry standards, opening up the possibility of many new suppliers for this item. Apply the cost plus (should cost) framework presented in class to complete the questions below. Complete all calculations in the excel file that you will upload with your exam. 1. Based on this information, provide a complete cost plus analysis for each supplier that appropriately accounts for tooling costs - but leaves all other elements of the cost plus model the same. As of yesterday, California Tech charged Primo Caf $3 per unit. But today, California Tech called Marco to tell him that the new design would require $0.50 in tooling costs for each item and therefore they needed to increase their sell price to $4.15. 2. Create a second cost plus analysis for each supplier that appropriately accounts for tooling costs - and makes any other adjustments that you think are relevant. You have the following unit cost information for electronics from California Tech Inc. from yesterday. You also have the following information from a potential new supplier, Boston Electric Company. Boston Electric has said they would be willing to sell you the electronics for $4.16 per unit. 3. What might be an appropriate range of best and worst prices that you would want to consider when negotiating price with each supplier? 4. Marco wants a recommendation on what Primo Caf should do. Given the information above- and what you know about the product you are sourcing - what would you recommend? Why? California Tech DM $ 0.300 DL $ 0.550 OH $ 0.650 COGS $ 1.500 SG&A $ 0.150 TC $ 1.650 Profit $ 2.310 Sell Price $ 3.960 Boston Electric DM $ 0.350 DL $ 0.650 OH $ 1.300 Tooling $ 0.200 COGS $ 2.500 SG&A $ 0.250 TC $ 2.750 Profit $ 1.375 Sell Price $ 4.125 You know the average overhead rate for this industry should be 120% and the average profit margin on these kinds of items should be around 50%, although not all suppliers apply these rates Marco likes California Tech Inc. because they have been willing to accommodate changes in demand. California Tech has also had an excellent track record in terms of getting the electronics to Primo Caf on time. Marco doesn't know much about Boston Electric except for the cost information above and he is somewhat hesitant to make the switch to an unknown supplier for this part. QUESTION #3 Primo Caf is thinking about outsourcing production of the Bean Boiler. Currently, the cost of producing the Bean Boiler in-house is $13 per unit. You have found a supplier - Legit Mfg LLC - who can produce the Bean Boiler at $12.50 per unit. Legit Mfg has the capacity to produce the Bean Boiler in large volumes (30,000 units per production run). Primo Caf sells up to 304,500 Bean Boilers per year so your plan is to buy 300,000 units from Legit Mfg and make any additional units in-house. Legit Mfg quotes you a contract price of $3,450,000 for 300,000 units based on the following cost information. DL OH 50% Legit Manufacturing LLC DM $ 1.120 $ 6.590 $ 3.295 Tooling $ 0.050 COGS $ 11.055 SG&A $ 1.106 TC $ 12.161 Profit $ 0.365 Sell Price $ 12.530 10% 3% You know that Legit Mfg will have to retrain their employees to accommodate production of the Bean Boiler as well as retool some of their existing machinery. But having seen the Bean Boiler produced in-house - you also know that once employees learn the new process, production becomes relatively standardized after the first run. Based on this knowledge, you believe that Legit Mia's cost model needs to be adjusted in a few ways: The product price should be calculated without tooling cost and should reflect an 70% learning curve. After calculating the product price per unit for each run the tooling cost should be added back in to arrive at a total price per unit for each run. Adjust the given cost plus model and then apply a learning curve as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? Question #4 Primo Caf has been purchasing aluminum castings from BJS PT for many years. Two years ago, on a weekend morning, Marco received an emergency call from a salesman for BJS. Its factory in Indonesia was on fire! Employees and firemen had been killed during the incident, and there was significant damage. BJS had been an excellent supplier to Primo Caf and the loss of BJS would have severely impacted Primo Caf's operations and profits. The salesman understood Primo Caf's reliance on BJS and stated that "BJS will do everything possible to keep from shutting down your company." Indeed, BJS met its commitment. BJS quickly moved production to a qualified factory in Singapore, while it rebuilt the Indonesia plant. During the transition to Singapore, BJS air shipped product to Primo Caf and BJS paid the additional cost of air shipment (normally, product is shipped by ocean freight at Primo Caf's cost). Primo Caf-owned tooling in Indonesia estimated at $250,000 was destroyed in the fire. Using its own money, BJS built new tools for parts that were in production to meet Primo Caf's unit demand. While there were anxious moments during the transition, fortunately, Primo Caf did not miss any customer commitments, and, other than the additional staff hours working through the transition with BJS, there were no additional costs for Primo Caf. Fast forward to today. Primo Caf's legal team is performing a tooling audit. The audit is meant to confirm the status of Primo Caf-owned tools that are located with suppliers. Primo Caf's legal team has sent you a list of tools to check, including $250,000 of tools at BJS. After contacting BJS, you discover that some of the tools are no longer in service because they were destroyed in the fire two years ago. More specifically, you find that BJS rebuilt $150,000 of the tooling in Singapore to meet Primo Caf's production requirements at the time of the fire. However, an additional $100,000 of the tooling was not rebuilt, since parts produced from those tools were from old product designs and no longer used by Primo Caf. Marco wants a recommendation on what Primo Caf should do. Applying the ethical framework presented in class, complete the following. Include a discussion from at least 2 of the 5 approaches. 1. Step 1 - Recognize an Ethical Issue a. Is this an ethical issue? Provide a detailed explanation for your reasoning. 2. Step 2 - Get the Facts: Answer the following questions: a. What are the relevant facts of the case? b. What facts are not known? C. What individuals/groups have an important stake in the outcome? d. Are the concerns of some individuals/groups more important than others? Why? e. Do you know enough to make a decision at this point? Why or why not? 3. Step 3 - Develop Options a. Describe three potential courses of action that you and Marco could take b. For each potential course of action, describe the potential outcomes for the individuals/groups involved 4. Provide a proposed recommendation to Marco The legal team states that by contract BJS must maintain tooling in good condition for 15 years, regardless if the tools are used or not. The legal team states that by contract BJS owes Primo Caf $100,000 the value of the tools destroyed but not rebuilt. Legal is demanding payment! QUESTION #5 Primo Caf has long relationship with Techno-Gadgets Limited to produce the temperature and pressure gauges that go into the Caffissimo. However, Techno-Gadgets recently underwent an ownership change and since then the quality of their products has declined. lise. Primo's CEO and founder, is in negotiations with Techno-Gadgets to resolve the issue, but in the meantime, you have been tasked with looking for new potential suppliers. Your search has lead you to two overseas companies: Tokyo Teshtonics Inc. and Allesgute Engineering GmbH. Tokyo Tectonics Inc. is located in Japan and quotes you price of 12.00 (15 Japanese Yen) per gauge. Allesgute Engineering GmbH is located in Germany and quotes you a price of 12.00 (15 Euro) per gauge. In order to help determine which company has the best cost structure, you have collected the following information Current USD/JPY exchange rate: $1 = \1.50 Expected USD/JPY exchange rate in six months: $1 = 1.20 Current USD/EUR exchange rate: $1 = 0.8 Expected USD/EUR exchange rate in six months: $1 = 1.20 Additional Costs Tokyo Tectonics Inc. Shipping to port of export Ocean freight Duties on imports Transportation to warehouse $ 4.25 $ 30.25 $ 1.50 $ 3.75 Allesgute Engineering GmbH $ 5.30 $ 27.50 $ 1.80 $ 3.00 Marco wants to move quickly and lock up a contract with Allesgute Engineering immediately. lise is inclined to give Techno-Gadgets six months to resolve its issues. At that point, she is interested in inking a deal with Tokyo Tectonics. Apply exchange rate calculations as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Calculate the current and future total cost for each supplier in USD. 2. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why? QUESTION #6 Gianna, Primo's Chief Marketing Officer, and Marco, the Chief Operating Officer, are arguing over the fate of the Bean Boiler. The Bean Boiler is Primo Caf's most basic model. It is competitively priced at $20 per unit and the company reliably sells 25,000 units per month. Fixed annual costs and variable costs for the Bean Boiler are presented below. Gianna sees the Bean Boiler as a loser. There are lots of competitors that are rapidly eating into Primo's market share - and although sales have been stable, the company's best projections are that Bean Boiler sales volume will decline by 25% year-on-year over the next five years. Gianna wants to pull company resources from the Bean Boiler now and invest immediately in a new product - a French press she's designed called the Brassage Frais. Marco is not convinced. From manufacturing perspective, producing 25,000 Bean Boilers a month is easy. Plus - given its current cost structure and demand volume - the Bean Boiler pulls in about $6,000,000 in profits per year. Marco doesn't see why the company should give up those profits for an unproven product like the Brassage Frais. And while Marco concedes there's nothing special about Primo's production process - other companies make essentially the same product in the same way - Marco is convinced it is cheaper to produce in-house than outsource. In fact, when Marco asked you to find a potential outsourced supplier for production of the Bean Boiler, the best price you could find was $14.00 per unit (previous negotiations with Legit Mfg from Q3 fell through and the company has since gone out of business). In-House (Cost to Make) Direct Materials $2.00 Direct Labor $5.00 Variable Mfg Overhead $5.00 Total Variable Costs Per Unit $12.00 Fixed Annual Mfg Overhead $300,000 Outsource (Cost to Buy) Price Per Unit $14.00 Apply the make-buy framework as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Caf should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? WhyStep by Step Solution
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