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QUESTION #1- Total Cost Analysis Primo Caf Inc. has been doing well. Revenue from its three lines of coffee makers have exceeded expectations. In fact, things have been going so well that lize 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 - Puing's Premium Coffee - and estimates the company can sell 8,000- 10,000 pounds of coffee per month at $25 per pound. There's only one thing left to do-find a supplier for the coffee beans. Marco, the CoQ 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. You've come up with the following cost information for both suppliers. African Coffee Unlimited SAesoresso Company Price $0.90/pound $0.95/pound Shipping to port of export $2,000/container $20/pallet Ocean freight $36/pallet $10,000/container Trucking costs (per container) $2.60/mile $2.60/mile Duties on imports are going to be 5% 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 8% of the price of a container. Once the beans are offloaded in California, they will be transported via truck 2,190 miles to Prinsis Grand Rapids facility. South American Espresso Company will be shipping to the Port of Charleston in South Carolina, where port handling fees are 12% of the price of a container. Once the beans are offloaded in South Carolina, they will be transported via truck 955 miles to Pomo's Grand Rapids facility Poimo'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. Questions on the next page! 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? 3. Other than price, what are the major cost drivers of the total cost analysis for each supplier? 4. Maroo 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? 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. The Caffissime is Primo Caf's high-end offering. Primo Caf produces the external casing for the Caffissinis in-house, but buys all of the important sub- components from external suppliers. The most important sub-components for the Sattissing 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 Cattissing produces a perfect cup of coffee at brewing. The Caffissine'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 Sattissing costs $375 to produce and sells for $600. Because of the relatively high price and unique design, demand for the Cattissing is difficult to predict. Over the past year, demand has ranged from 8,500 to 11,500 units per month. A B 00 C D E H African Coffee Unlimited Pallet Container % Pound $ 0.90 South American Espresso Company Pound Pallet Container % $ 0.95 $ 20.00 $ 10,000.00 $2,000.00 $36.00 0.05 Price Ship to port of export Ocean Freight Duties Port Handling Trucking to Grand Rapids Warehousing Costs Total Cost $ 2.60 $ 2.60 $ 50.00 $ 50.00 3 1 5 Conversions Price / pound Pounds / Pallet Pounds / Container 6 7 8 9 20 Shipping to port of export Ocean Freight Duties Port Handling Trucking to Grand Rapids Warehousing Costs 21 23 24 25 26 27