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Question 5: Mark Adams grew up always working with his father in a workshop in their backyard. This lead him to pursue carpentry as his career. He incorporated Mini Wooden Toys Company (MWTC) 10 years ago and he now owned over 250 stores across Canada. Mark made a commitment to himself to use sustainable wood sources (wood from tree farms rather than old forest logging) but still create a top-quality product. He has always wanted to remain innovative and creative. A few years ago, he won the Gold Leaf Environment Award and The New Toy of the Year award. He is actively engaged with local charities. Over the years, Mark maintained close contact with the shop managers. They are telling him that once a customer buys a few pieces of one product line, they keep coming back to complete a set. MWTC now has over 20 product lines. Mark always believes that the shop managers are his best source of information for new products and demand. In order to plan for the upcoming Christmas season for 2023, Mark collected the following information and came up with 4 options for his consideration: - Fabrication of toys using rare woods: - Customers are willing to pay up to 10% more in order to have the wooden toys in higher quality and using rarer woods. - It would cost MWTC 55% more in the cost of direct materials by sourcing these new and exotic rare woods. - Use upscale packaging: - Higher quality packaging with a more upscale design would increase sales by about 8%. - The packaging redesign could be done with a one time design fee for $100,000 and an ongoing increase in shipping (selling) costs of $0.75 per package. - Increase regular price - If the regular price for their product line is increased by 5%, the number of units sold will be reduced by 5%. - Expand current product line - Adding a complete product line on wooden people to accompany the building sets will add 60,000 units to sales. This will, however, take away sales from each of the other lines by 14%. It is possible that the addition of the wooden people will make the lines of toys more appealing to young girls and bring additional new sales for all of the lines. - The new product line of wooden people would sell for $40 per set, and the costs associated with the line would be Direct Materials : \$ 5; Direct Labour : \$ 2; Variable Overhead : \$ 2. The variable selling and general administrative expenses would remain the same per unit as for the other products. Fixed Manufacturing Overhead cost will be an additional of $50,000 per year. Fixed Selling expenses will be an additional of $ 25,000 per year. Below are the financial information for MWTC: Inrome Statement Each of these options should be examined independently with the original information. The product costs for all of the current product lines are the same as shown in the table below: Required: a. Draft a proposed mission statement for MWTC. b. Prepare a financial analysis for the above 4 proposals c. Make a recommendation based on the financial analysis in (b) and other relevant qualitative factors d. Briefly discuss how MWTC should implement their recommendation from (c)
