SHOW CALCULATIONS IN EXCEL!!!!!
QUESTION #2 - Cost Plus Analysis 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, Penje. Up the possibility of many new suppliers for this item. For the old design, California Tech charged Primo Caf 54.02 per unit. The cost plus analysis is in the table below. Today, California Tech called Marco to tell him that the new design would require a direct material increase of $0.05, and tooling costs would be reduced to $0.45 for each item. Therefore, they will decrease the price to $3.95. Marco did not request an updated cost plus analysis. 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 $3.15 per unit. California Tech - "Old Design Cost Plus" Boston Electric DM $0.30 DM $0.35 DL $0.55 DL $0.50 OH $0.83 OH $1.00 COGS $1.68 COGS $1.85 SG&A $0.17 SG&A $0.28 TPC $1.84 TPC $2.13 Profit $1.47 Profit $0.53 Prod Price $3.32 Prod Price $2.66 Tooling $0.70 Tooling $0.50 Sell Price $4.02 Sell Price $3.16 Since Primo will be buying a standard product, you found that the average overhead rate for this industry should be 120% and the average profit mark-up should be around 20%. SG&A mark-up is considered acceptable between 10-15% of COGS. 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. Questions on the next page! 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. Given California Tech's old design cost plus analysis and, assuming that the information that California Tech provided to Marco is correct, then what should be the price of the new design from California Tech? 2. Create more cost plus analyses for each supplier with any other adjustments that you think are relevant. 3. What might be an appropriate range of best and worst prices that you would want to consider when negotiating price with each supplier? Why? 4. Marco is willing to negotiate with both suppliers and wants a recommendation on how Primo Caf should proceed in discussions with each supplier. Be sure to reference your analysis in the recommendation. California Tech - "Old Design Cost DM $0.30 DL $0.55 OH $0.83 COGS $1.68 SG&A $0.17 TPC $1.85 Profit $1.47 Prod Price $3.32 Tooling $0.70 Sell Price $4.02 Boston Electric DM $0.35 DL $0.50 OH $1.00 COGS $1.85 SG&A $0.28 TPC $2.13 Profit $0.53 Prod Price $2.66 Tooling $0.50 Sell Price $3.16 QUESTION #2 - Cost Plus Analysis 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, Penje. Up the possibility of many new suppliers for this item. For the old design, California Tech charged Primo Caf 54.02 per unit. The cost plus analysis is in the table below. Today, California Tech called Marco to tell him that the new design would require a direct material increase of $0.05, and tooling costs would be reduced to $0.45 for each item. Therefore, they will decrease the price to $3.95. Marco did not request an updated cost plus analysis. 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 $3.15 per unit. California Tech - "Old Design Cost Plus" Boston Electric DM $0.30 DM $0.35 DL $0.55 DL $0.50 OH $0.83 OH $1.00 COGS $1.68 COGS $1.85 SG&A $0.17 SG&A $0.28 TPC $1.84 TPC $2.13 Profit $1.47 Profit $0.53 Prod Price $3.32 Prod Price $2.66 Tooling $0.70 Tooling $0.50 Sell Price $4.02 Sell Price $3.16 Since Primo will be buying a standard product, you found that the average overhead rate for this industry should be 120% and the average profit mark-up should be around 20%. SG&A mark-up is considered acceptable between 10-15% of COGS. 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. Questions on the next page! 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. Given California Tech's old design cost plus analysis and, assuming that the information that California Tech provided to Marco is correct, then what should be the price of the new design from California Tech? 2. Create more cost plus analyses for each supplier with any other adjustments that you think are relevant. 3. What might be an appropriate range of best and worst prices that you would want to consider when negotiating price with each supplier? Why? 4. Marco is willing to negotiate with both suppliers and wants a recommendation on how Primo Caf should proceed in discussions with each supplier. Be sure to reference your analysis in the recommendation. California Tech - "Old Design Cost DM $0.30 DL $0.55 OH $0.83 COGS $1.68 SG&A $0.17 TPC $1.85 Profit $1.47 Prod Price $3.32 Tooling $0.70 Sell Price $4.02 Boston Electric DM $0.35 DL $0.50 OH $1.00 COGS $1.85 SG&A $0.28 TPC $2.13 Profit $0.53 Prod Price $2.66 Tooling $0.50 Sell Price $3.16
