One of the constraints at Muesli AG is production capacity. What can managers do to mitigate (diminish) the constraint? Advertise specific product lines to improve sales (i.e. run a promotion for Raisin or Nut Muesli). Invest in new machinery. Increase research and development funding to determine if expanding their product line to include granola bars is a good idea. Manufacture their own boxes used to package Muesli. Decision 1: The various flavors of muesli are considered product lines at Muesli AG. A contribution margin statement segmented by product line is provided. Management has noticed that nut muesli has consistently shown a negative net income. In the strategic planning meeting, they will be discussing whether to discontinue selling nut muesli. Here is some more information on the various expenses in the statement. . . . Advertising is specific to the various product lines Sales teams are assigned to specific product lines. If the product line is dropped, the sales reps' salaries will be discontinued. Labor unions are strong in Germany. Direct labor costs will remain at the stated amount regardless of how many or which products are made. Variable selling expense is commission paid on the sales of the products. All other fixed costs are divided evenly across product lines. The team believes that they will likely not be able to use any time on the machine that is freed up from production of nut muesli for other product lines because of market constraints so the machine will remain idle. Use cell formulas and cell links in the Excel worksheet provided to answer the following questions. . . 1. How will dropping the sales of nut muesli affect net income at Muesli AG? 2. Should the company discontinue manufacturing and selling nut muesli? Explain. 3. What other considerations should go into making this decision? Decision 2: Muesli AG currently purchases all its packaging for the muesli that it sells. They pay 0.12 for the large bags, 0.28 for large boxes, 0.09 for small bags and 0.21 for small boxes. Management is considering using a corner of the warehouse that is unused to manufacture the large boxes. They currently purchase and use 48,000 large boxes per month, 576,000 large boxes per year. The table below describes the estimated costs to manufacture the large boxes. Muesli AG will need to purchase equipment to cut, fold and glue the boxes. It will be depreciated for five years at 10,400 per year. 12,000 52,000 12.00 Direct labor per month Purchase of equipment Bundle of cardboard Each bundle makes 990 boxes. Labels (each) Fixed manufacturing overhead Per box of muesli 0.01 1.61 4. Compare the costs of manufacturing the large boxes to the cost of purchasing the large boxes. 5. Should Muesli AG manufacture the large boxes or purchase them from their current supplier? 6. Explain how the purchase of the box manufacturing equipment informs your decision. Decision 3: A new grocery chain is launching several stores in the northern region of Germany. There will be a festival and quite a lot of media coverage of the openings. They would like to have Muesli AG do a special limited edition run of the 1Kg Mixed Fruit muesli with special festival packaging and a change in the recipe to introduce additional nuts into the standard mixed fruit recipe. This will be a one-time festival deal and is expected to be a big hit with consumers. Therefore, they would like to order 32,000 boxes of the special muesli. Because the grocery chain believes that this is a great opportunity for Muesli AG, they are offering 7.25 per box. The normal selling price is 7.90 per box. For the special order, the festival labels will be purchased from a local printer at a cost of .02 each plus a 500 set up fee. There will be no variable selling costs because no commission will be paid on this special order. The additional nuts for the festival recipe will cost .12 per box produced. The grocery chain will pick up the special order from the manufacturing plant so no additional transportation costs will apply. Assume that Muesli AG has the capacity to produce the special edition Mixed Fruit muesli without disrupting their normal sales. 7. Using the data given for the standard cost of producing a 1kg box of mixed fruit muesli, identify the revenue and costs relevant to this special-order decision. a. Calculate the per unit (box) values and the values for an order of 32,000 boxes of the muesli. 8. Calculate the revenues and costs relevant to the special order. a. Calculate the per unit (box) values and the values for an order of 32,000 boxes of the muesli. 9. Calculate the difference between the standard mixed fruit muesli and the special order. 10. Should the special order be accepted? Why or why not? 11. Using Goal Seek in Excel, calculate the lowest selling price per box that Muesli AG should be willing to accept for the special order. Decision 4: Research and development at Muesli AG has been working on creating a product that could move Muesli AG into new markets. The new product is a granola energy bar created by processing Mixed Fruit muesli further into a bar to be sold as a quick snack or even a convenient breakfast bar. The new muesli granola bar will be wrapped in a special biodegradable waxed paper printed with the Muesli AG logo. The ingredients for 8,000 1kg boxes of muesli produce 24,000 granola bars. Management plans to sell the granola bars for 2.95 each. 12. Based on the costs of manufacturing mixed fruit muesli and the estimated costs to convert the muesli into granola bars, determine whether it is more profitable to sell the muesli as is or process it further into granola bars? 13. Given the results of this analysis, what advice would you give the management at Muesli AG? Discuss the implications of your findings. Decision 5: Machine time is a constrained resource at Muesli AG. There is only one machine and it runs 24 hours a day, five (5) days a week, 20 days a month. New equipment can be purchased, but it quite expensive. Given the current constraints, management would like to explore ways of maximizing profit in spite of the constraints. In particular, they would like to look at 500g mixed fruit muesli, 1kg fruit muesli, and the new granola energy bar products. For purposes of this analysis, assume the granola bar sells for 3.95 each. 14. If Muesli AG could sell whatever it produces, in what order should it manufacture the three products? 15. What other considerations go into deciding what products to manufacture