latex products, inc

8/6/2019 Latex Products, Inc

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LATEX PRODUCTS, INC.LATEX PRODUCTS, INC.A Case review by Group 2 EMBA 16A Case review by Group 2 EMBA 16


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Brents Objective To Optimize His Divisions Sales ProfitablyTo Optimize His Divisions Sales Profitably

And Sustainably.And Sustainably.


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Case Facts Brents division currently makes annual sales of $1.5mBrents division currently makes annual sales of $1.5m

Current capacity of division is $2,000,000 per annum on a oneCurrent capacity of division is $2,000,000 per annum on a one--shift basis.shift basis.A net $500k capacity is currently idle.A net $500k capacity is currently idle.

They sell 3 class products i.e. meteorological balloons, sporting bladdersThey sell 3 class products i.e. meteorological balloons, sporting bladdersand toys. Each contributing equally.and toys. Each contributing equally.

Contribution of the Toy department is $500,000 from sales of doll skins,Contribution of the Toy department is $500,000 from sales of doll skins,

toy duck and toy rabbittoy duck and toy rabbit

Brent is considering a bid for a 40,000 order, each of Toy dogs and toyBrent is considering a bid for a 40,000 order, each of Toy dogs and toyelephants, by Pentagon Toy company. A success at this may open upelephants, by Pentagon Toy company. A success at this may open upopportunity to do similar orders totaling $400,000 in the current yearopportunity to do similar orders totaling $400,000 in the current year..


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Bid Analysis

Toy DogsToy Dogs

ToyToy

ElephantsElephantsCompetitor' Minimum Bid Price Per UnitCompetitor' Minimum Bid Price Per Unit

(cents)(cents) 35.0035.00 35.0035.00

Latex Inc. Min. Bid Price Per Unit (cents)Latex Inc. Min. Bid Price Per Unit (cents) 40.2540.25 40.2540.25

Competitor' Maximum Bid Price Per UnitCompetitor' Maximum Bid Price Per Unit(cents)(cents) 45.0045.00 45.0045.00

Latex Inc. Max. Bid Price Per UnitLatex Inc. Max. Bid Price Per Unit(cents)(cents) 51.7551.75 51.7551.75

Pentagon isPentagon is

willing towilling to

pay a 15%pay a 15%

premium onpremium on

latexlatex

productsproducts


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Production Timing

DescriptionDescription Time (Time (MinsMins))Immersion Of Carriage In Chemical Salts (Minutes)Immersion Of Carriage In Chemical Salts (Minutes) 55

BakingBaking 10.0010.00

Immersion In LatexImmersion In Latex 20.0020.00

Air Drying SpaceAir Drying Space 10.0010.00

Bathing In Heated WaterBathing In Heated Water 90.0090.00

DryingDrying 90.0090.00

StrippingStripping 20.0020.00Total Production Time (Minutes)Total Production Time (Minutes) 245.00245.00

PackagingPackaging 2hrs2hrsTotal Production Time (Hours)Total Production Time (Hours) 8hrs 5mins8hrs 5mins

Possible Number Of Cycles/Shifts Per DayPossible Number Of Cycles/Shifts Per Day 3.003.00


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Capacity Requirement for Current Orders

Toy DogsToy Dogs Toy ElephantsToy Elephants

Current OrderCurrent Order 40,00040,000 40,00040,000

Mold Carriage CapacityMold Carriage Capacity 185185 180180

Mold Carriage CyclesMold Carriage Cycles RRequiredequired 216216 222222

Cost Per CarriageCost Per Carriage $3646$3646 $3971$3971

Cost of Mould Per ToyCost of Mould Per Toy ProducedProduced 9.12cents9.12cents 9.93cents9.93centsMaximum OrderMaximum Order In 1 monthIn 1 month 10,00010,000 10,00010,000

MonthlyCarriage Capacity On SingleMonthlyCarriage Capacity On Single ShiftShift 37003700 36003600

MonthlyCarriage Capacity On 3MonthlyCarriage Capacity On 3 ShiftsShifts 11,10011,100 10,80010,800


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Cost AnalysisDogDog ElephantElephant

CompoundCompound 5.755.75 6.806.80Other MaterialsOther Materials 0.40.4 0.500.50PaintPaint 0.40.4 0.400.40

Total MaterialTotal Material 6.556.55 7.707.70Direct laborDirect labor 4.384.38 4.294.29Indirect LaborIndirect Labor 1.311.31 1.211.21Division OverheadDivision Overhead 1.331.33 1.361.36

SuppliesSupplies 0.50.5 0.500.50MaintenanceMaintenance 0.750.75 0.750.75SpoilageSpoilage 1.281.28 1.391.39PackagePackage 0.30.3 0.300.30

2.832.83 2.942.94

Total Manufacturing CostTotal Manufacturing Cost 16.4016.40 17.5017.50Estimated Factory OverheadEstimated Factory Overhead 14.4014.40 15.4015.40Cost of Mould per unitCost of Mould per unit 9.129.12 9.939.93

Total CostTotal Cost 39.9239.92 42.8342.83


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Profitability Analysis


Latex Inc.Latex Inc. Selling (Bid)Selling (Bid) PricePrice 3535 40.2540.25 39.9239.92 4545 47.947.9 51.7551.75 3535 40.2540.25 42.8342.83 4545 48.348.3 51.7551.75

Latex Inc. Cost per unitLatex Inc. Cost per unit --39.9239.92 --39.9239.92 --39.9239.92 --39.9239.92 --39.9239.92 --39.9239.92 --42.8342.83 --42.8342.83 --42.8342.83 --42.8342.83 --42.8342.83 --42.8342.83

Profit MarginProfit Margin --4.924.92 0.330.33 5.085.08 7.987.98 11.8311.83 --7.837.83 --2.582.58 00 2.172.17 5.475.47 8.928.92

Profit As % of CostProfit As % of Cost --12%12% 1%1% 0%0% 13%13% 20%20% 30%30% --18%18% --6%6% 0%0% 5%5% 13%13% 21%21%

Pentagons Selling pricePentagons Selling price 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858

Pentagons Profit marginPentagons Profit margin

(Minus Overhead Costs)(Minus Overhead Costs) 2323 17.7517.75 18.0818.08 1313 10.110.1 6.256.25 2323 17.7517.75 15.1715.17 1313 9.79.7 6.256.25

Profit As % of CostProfit As % of Cost 66%66% 44%44% 45%45% 29%29% 21%21% 12%12% 66%66% 44%44% 35%35% 29%29% 20%20% 12%12%

Bidding at48cents ensure

fair profitabilityfor Latex and

Pentagon



Pentagon


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Capacity Requirements For Sales Target

Current Sales Capacity Of Brents DivisionCurrent Sales Capacity Of Brents Division $2,000,000$2,000,000

Projected Sales To PentagonProjected Sales To Pentagon $400,000$400,000

Maximum No Of Units Of Dog/Elephants ToysMaximum No Of Units Of Dog/Elephants ToysRequired To Cover Sales (at minimum bid price)Required To Cover Sales (at minimum bid price) 993,789993,789

Minimum No Of Units Of Dog/Elephants ToysMinimum No Of Units Of Dog/Elephants ToysRequired To Cover Sales (AtRequired To Cover Sales (At maximum bid price)maximum bid price) 772,947772,947


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Toy DogsToy Dogs Toy ElephantsToy Elephants TotalTotalSales TargetSales Target $400,000$400,000No of Toys (At bid price of 48centsNo of Toys (At bid price of 48cents derivedderivedfromfrom previous 40,000 order)previous 40,000 order) 417,000417,000 417,000417,000 834,000834,000

Carriage capacityCarriage capacity 185185 180180

Mold Carriage CyclesMold Carriage Cycles RRequired (assumingequired (assumingsingle shifts)single shifts) 22542254 23162316Maximum cyclesMaximum cycles per carriageper carriage per annumper annum

(assuming(assuming 50 working weeks)50 working weeks) 250250 250250

Number of Mould Carriages RequiredNumber of Mould Carriages Required 99 99

Cost Per CarriageCost Per Carriage $3646$3646 $3971$3971Cost of Mould Per ToyCost of Mould Per Toy 7.86cents7.86cents 8.57cents8.57cents

Maximum OrderMaximum Order In 1 monthIn 1 month 10,00010,000 10,00010,000

MonthlyCarriage Capacity On SingleMonthlyCarriage Capacity On Single ShiftShift 37003700 36003600

MonthlyCarriage Capacity On 3MonthlyCarriage Capacity On 3 ShiftsShifts 11,10011,100 10,80010,800


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Cost AnalysisDogDog ElephantElephant

CompoundCompound 5.755.75 6.806.80Other MaterialsOther Materials 0.40.4 0.500.50PaintPaint 0.40.4 0.400.40

Total MaterialTotal Material 6.556.55 7.707.70Direct laborDirect labor 4.384.38 4.294.29

Indirect LaborIndirect Labor 1.311.31 1.211.21Division OverheadDivision Overhead 1.331.33 1.361.36

SuppliesSupplies 0.50.5 0.500.50MaintenanceMaintenance 0.750.75 0.750.75SpoilageSpoilage 1.281.28 1.391.39

PackagePackage 0.30.3 0.300.302.832.83 2.942.94

Total Manufacturing CostTotal Manufacturing Cost 16.4016.40 17.5017.50Estimated Factory OverheadEstimated Factory Overhead 14.4014.40 15.4015.40Cost of Mould per unitCost of Mould per unit 7.867.86 8.578.57

Total CostTotal Cost 38.6638.66 41.4741.47


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Profitability Analysis


Latex Inc.Latex Inc. Selling (Bid)Selling (Bid) PricePrice 3535 40.2540.25 39.9239.92 4545 47.947.9 51.7551.75 3535 40.2540.25 42.8342.83 4545 48.348.3 51.7551.75

Latex Inc. Cost per unitLatex Inc. Cost per unit --38.6638.66--38.6638.66--38.6638.66--38.6638.66--38.6638.66--38.6638.66 --41.4741.47--41.4741.47 --41.4741.47--41.4741.47--41.4741.47--41.4741.47

Profit MarginProfit Margin --3.663.66 1.591.59 1.261.26 6.346.34 9.249.24 13.0913.09 --6.476.47 --1.221.22 1.361.36 3.533.53 6.836.83 10.2810.28

Profit As % of CostProfit As % of Cost --9%9% 4%4% 3%3% 16%16% 24%24% 34%34% --16%16% --3%3% 3%3% 9%9% 16%16% 25%25%

Pentagons Selling pricePentagons Selling price 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858 5858

Pentagons Profit marginPentagons Profit margin

(Minus Overhead Costs)(Minus Overhead Costs) 2323 17.7517.75 18.0818.08 1313 10.110.1 6.256.25 2323 17.7517.75 15.1715.17 1313 9.79.7 6.256.25

Profit As % of CostProfit As % of Cost 66%66% 44%44% 45%45% 29%29% 21%21% 12%12% 66%66% 44%44% 35%35% 29%29% 20%20% 12%12%



Pentagon


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Decision QuestionDecision Question

1.1. ShouldShould Mr. Brent bid for theMr. Brent bid for the proposedproposed

contract?contract?

2.2. If yes, which of the options would IIf yes, which of the options would Irecommend ?recommend ?

3.3. What unit price(s) should he quote in the bid ?What unit price(s) should he quote in the bid ?


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Considerations

His Objective :His Objective :

To Optimize His Divisions Sales ProfitablyTo Optimize His Divisions Sales ProfitablyAnd Sustainably.And Sustainably.

Criteria :Criteria : ProfitabilityProfitability

SustainabilitySustainability

Capacity AvailabilityCapacity Availability CompetitionCompetition

RisksRisks


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Criteria AnalysisCriteria Bid for Toy Dog

only

Bid for Toy Elephant

Only

Bid For Both

ProfitProfit

OptimizationOptimization

yy Expected salesExpected sales

approximatelyapproximately $$

yy Profit of $66,434Profit of $66,434

(at max bid price of 51.75)(at max bid price of 51.75)

NoNo


approximatelyapproximately $$



NoNo


approximatelyapproximately

$400,000$400,000



yesyes

BusinessBusiness

SustainabilitySustainability

NoNo NoNo YesYes

ProductionProduction

CapacityCapacity

AvailabilityAvailability

YesYes YesYes YesYes

CompetitivenessCompetitiveness yy Unique market forUnique market forLatex, pricingLatex, pricing

advantageadvantage

yy Quality productQuality product

yy Unique market for Latex,Unique market for Latex,

pricing advantagepricing advantage


yy Unique market forUnique market for

Latex, pricingLatex, pricing

advantageadvantage


RisksRisks yy Changing doll stylesChanging doll stylesyy Unfamiliar terrainUnfamiliar terrain

yy Changing doll stylesChanging doll styles

yy Unfamiliar terrainUnfamiliar terrain

yy Changing doll stylesChanging doll styles

yy Unfamiliar terrainUnfamiliar terrain


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Recommendation Mr. Brent should bid to meet its divisionsMr. Brent should bid to meet its divisions

objective of profitability and sustainabilityobjective of profitability and sustainability

He should bid for both Toy Dog and ToyHe should bid for both Toy Dog and Toyelephantelephant

He should bid at 48cents for both. At this price,He should bid at 48cents for both. At this price,

he makes good margin, Pentagon also makeshe makes good margin, Pentagon also makesenough margin to cover overhead costs andenough margin to cover overhead costs andstill make profit.still make profit.

latex products, inc

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