Modern Tyres is a tyre manufacturing company in GCC region. The company has been able to attract good customers' base through its quality, cost, time and innovation reasons. The company has been able to attract good amount of resources at the lowest possible cost and use them effectively in their manufacturing processes.Cost reduction strategies of this company included reduced amount of wastage, improved operational efficiencies through learning and focus on value adding activities.

It has a manufacturing unit in Dubai and distributes its products to other GCC and Middle Eastern countries. The company considers its value chain and supply chain activities as its key success factors in addition to innovation they always have. The CEO of the company always reported in all meetings a problem which longer time is taken for making decisions.The CEO of the company requested the managers and accountants to look into this issue and find a solution.

1.1 Value Chain of Modern Tyres

The operational activities of Kuwait Tyres have been summarized as below:

DesignRaw Material

Part

Assembly

Marketing

Distribution $ Sales

Organization procures materials and manufactures products.Once the products are manufactured, they are checked for its quality and then distributed to the retailers and consumers.Any issues concerning the quality of the products reported by the consumers are directly reported to the retailers and necessary arrangements have been made through retailers to replace the tyres. The CEO of Modern Tyres wants to expand this value chain and consider including research, design, marketing and customer service functions in its value chain.

1.2 Cost Structure & Profitability Estimations of Modern Tyres

Modern Tyres has estimated the following units of sales for the coming month (August 2020).Cost details are also given below:

Infosenario(1)scenario(2)scenario(3)scenario(4)scenario(5)

Units10,00020,00030,00040,00050,000

Sell/unit$40$50$40$50$40

V. c/unit $20$20$20$20$20

To F.Ct$80$80$80$80$80

1.3 Inventory and Cost Details for August 2020

The company provides some information pertaining to their inventory and other costs as below for the month August 2020

Inventorybeginig ($)ending($)august 2020

Direct Materia$50,000 ?

Work in Process$140,000?

Finished Goods$640,000?

Cost Details for the month of August 2020

Direct Materials Purchased$480,000

Conversion Costs$1,320,000

Total Manufacturing costs added during the period$1,680,000

Cost of goods manufactured4 times of direct materials used

Gross Margin percentage20%

Revenues2,075,000

1.4 Advertisement Decision

Modern Tyres Company wants to decide whether to go for some more intensive advertisement for one of its products. The information pertaining to this decision are as given below:

Informationwithout Advertisementwith advertisement

Sales expected80 units88 units

Selling price per unit$400$400

Variable price per unit8080

Fix cost4,000$ 4,000 and $ 1,000 more due to advertisement

Required

1. Modern Tyres Company is facing decision making problem.The CEO feels that the company takes long time to decide.

(a) In this context, Discuss the five-step decision making process which can be used by Modern Tyres

(b) Draw a revised value chain model for Modern Tyres including research, design, marketing and customer service functions.

2. Taking information given in 1.2 above (cost structure), calculate operating income for the scenarios given

3.Considering information given in Table 1.3 above (inventory & cost details) for August 2020, Calculate the following:

(a) Ending Direct Materials inventory

(b) Ending Work in Process inventory

(c) Ending Finished good inventory

(Note: income statement to be shown)

4.Considering information given in 1.4 above, advise the company whether they should go for advertising that product or not?