The case and our analysis focus on the Galvanized Pallet Nails (GPN) product line. Insteel management conducted an activity-based costing exercise that led to product-line profitability information as reported in Table 1 on Page 3 of the case. GPN are the product of choice within the "nail". Be sure to use the information in the IWP Info Document where appropriate.

A. Insteel managers are evaluated on reported profitability. The calculation of the profit measure involves an EVA charge. See Exhibit E1 in the IWP Info Document for more information. Evaluate the quality of the EVA charge as a component of the profitability performance measure (Table 1 on page 3 of the case) at Insteel. Adopt the perspective of the product line manager for GPN, whose performance evaluation and bonus compensation are based on GPN profit after the EVA charge.

B. Identify the causes of the reduced reported profitability of Galvanized Pallet Nails (as shown in Table 2 on page 4 of the case) from 1995-1996 to 1996-1997. Be as specific as you can about resources involved, resource consumption, and cost assignment.

C. Prepare a baseline estimate of the total financial value of making the investment in the third GPN cell.