Case: Precision Worldwide, Inc.* Section A | Group 6
Submitted B:
Sellin$ Price %aterial &irect 'abour ()eread &epartmental
!"" Plastic #in$s 1350 $ 17.65 65.50 131.00
!"" Steel #in$s 1350 $ 321.90 196.50 393.00
Administrati)e 65.50 196.50 $ 279.65 $ 1107.90 +otal costProt !"/".01 232.!" Prot per rin$!"./"01 2.32!" The company sells rings at $1,350 per 100 rings regardless of being steel or plastic. t costs $279.65 per 100 rings to prod!ce plastic and $1,107.90 per 100 rings to prod!ce steel. Therefore, typical pro"t on plastic is $1,350#$279.65 $1,070.35 and on steel $1,350#$1,107.90 $2%2.10. Case 4 ! Stop production o5 Steel rin$s and sell onl plastic rin$s post mid September e)erwere. There &ill be 15,100 steel rings left o'er by the middle of (eptember as per the case. The loss in pro"t on these is 15100)2.%210 $36,557.10. f *!st plastic &ere prod!ced and s!pplied, it &ill ma+e 690 plastic rings per &ee+. This is e!al to 690)% 2,760 rings per month. The pro"t is 2760)$10.7035 $29,5%1.66 per month on plastic rings. -or the "rst month, / need to co'er the loss in pro"t of $36,557.10 &ith the pro"t made for the month of $29,5%1.66 so / still ha'e a loss of $29,5%1.66 # $36,557.10 $7,015.%%. The second month they need to co'er the loss still left o'er from the "rst month of $7,015.%% &ith the pro"t made in the second month of $29,5%1.66, this e!ates to a pro"t of $29,5%1.66#$7,015.%% $22,526.22. -rom this point for&ard / still ha'e % months so for the last % months they &ill ma+e a pro"t of %)$29,5%1.66 $11,166.6%. The total pro"t for 6 month is e!al the pro"t in the last % months pl!s the pro"t in the second month this is e!al to $22,526.22$11,166.6% 7!3",632.86 .
6 monts prot 5or Case !: 7!3",632.86 Case 4 2Stop production o5 steel rin$ and sell o5 te nised steel rin$ stoc9 wile producin$ and supplin$ plastic rin$ were competitor is supplin$ !" o5 te mar9et- and steel rin$s elsewere . The demand for rings is 690 per &ee+, so the demand for plastic &o!ld be 690)0.10 69 per &ee+. Therefore, the demand for steel &o!ld be 690#69 621 per &ee+. The demand per month for plastic &o!ld be 69)% 276 per month, &hile steel demand per month &o!ld be 621)% 2,%% per month. t is stated that by the middle of (eptember there &o!ld still be 15,100 steel rings left o'er. (o it &o!ld ta+e abo!t 15,1002,%% 6.0 months to eha!st steel ring s!pply. (o the pro"t per month &ill be 2%%)$2.%210 $6,013.76% on steel, and 276)$10.7035 $2,95%.166 on plastic, the total pro"t for the month is $6,013.76%$2,95%.166$,967.93. /e need to +no& the pro"t for 6 months since it &ill ta+e 6 months to deplete the steel rings this is 6)$,967.93 710,8"/.;0 .
6 monts prot 5or Case 2: 710,8"/.;0
Case 4 0 Continue sellin$ steel rin$s onl till te nised stoc9 o5 steel rin$ is sold out and post tat sell Plastic rin$s. There &ill be 15,100 steel rings left o'er by the middle of (eptember as per the case. f only steel rings are sold and the selling rate is 690 rings per &ee+ or 2,760 rings per month. t &ill ta+e 15,1002,760 5.%71 months. The pro"t generated by selling steel rings till the stoc+ ends is gi'en by 15,100 ) $2.%210 $36,557.10. -or the remaining time in the 6 months cycle, if / starts selling plastic rings, it &ill be able to sell 690)46#5.%71 365 plastic rings. The pro"t made on 365 plastic rings is gi'en by 365)$10.7035 $3906.7775. (o the total pro"t for 6 months is e!al to pro"t from selling steel rings only till stoc+ lasts and selling plastic rings thereafter, this is e!al to $3906.7775$36,557.10 73",360.8//1.
6 monts prot 5or Case 0: 73",360.8//1
Case ! Case 2 Case 0
6 monts prot 7!3",632.86 710,8"/.;0 73",360.8//1
(o &e can see from abo'e three cases that the prot 9eeps on decreasin$ i5 PWI produce steel rin$ post midSeptember . Therefore PWI sould stop producin$ Steel rin$s immediateland start producin$ Plastic rin$s in order to be able to sell onl Plastic rin$s post midSeptember as te re)enue $enerated 5rom sellin$ plastic rin$s compensates 5or te loss 5or$one on not sellin$ !1,!"" nised steel rin$s. lso &e sho!ld note that the special steel in)entor is a sun9 cost and sould not be ta9en into consideration 5or an decision ma9in$ process .