FinePrint Company Harvard Case Solution & Analysis

Calculation for Alternative 3:

As in alternative 3, opportunity of outsourcing Bradley is availed and the current production at full capacity is increased to the level of 180000 brochures, the revenue in this scenario is calculated by multiplying 180000 by at a typical price of 0.17. Variable costs are obtained by multiplying 150000 with different values per unit moreover, in this scenario the cost of 30000 by Bradley is also taken into account. Variable cost for sales is multiplied by 180000 as now Johnson will have to pay sales costs for the additional 30000 units. Fixed cost has remained the same for all the four alternatives. Contribution margin for this alternative is 17,400 while the units produced were 180000.

 Outsourcing Revenue 30,600 Variable Cost Direct Material 6,000 Direct labor 1,500 Overhead 1,500 Sales 1,800 Total Variable Cost 10,800 Cost of Outsourcing 2,400 Contribution Margin 17,400 Fixed Cost Direct Labor 3,000 Overhead 3,375 Sales 1,875 Corporate 3,750 Total Fixed Cost 12,000 Total Operating Income 5,400

Calculation for Alternative 4:

As in alternative 4, both opportunities are availed and the current production is increased to the level of 180000 but 25000 of these units are sold to Abbie Jenkins at \$8 for 100 brochures. The revenue in this scenario is calculated by multiplying 155000 at a typical price of \$17 for 100 brochures and 25000 by \$8 for 100 brochures. Variable costs are obtained by multiplying 150000 with different values per unit moreover, in this scenario the cost of 30000 by Bradley is also taken into account. Variable cost for sales is multiplied by 155000 as now Johnson will have to pay sales cost for the additional 5000 units and Johnson will not be required to pay variable sales cost for 25000 units that are being directly sold to Jenkins. Fixed cost has remained constant for all the four alternatives. Contribution margin for this alternative is 15,900 while the units produced were 180000.

 If both are accepted Revenue 28,850 Variable Cost Direct Material 6,000 Direct labor 1,500 Overhead 1,500 Sales 1,550 Total Variable Cost 10,550 2,400 Contribution Margin 15,900 Fixed Cost Direct Labor 3,000 Overhead 3,375 Sales 1,875 Corporate 3,750 Total Fixed Cost 12,000 Total Operating Income 3,900

DECISION

The above analysis can be summarized in the following table:

 Normal Operating Conditions Special Order Outsourcing If both are accepted Total Contribution Margin 15,000 13,500 17,400 15,900 Contribution Margin per unit 0.10 0.09 0.10 0.09 Total Operating Income 3,000 1,500 5,400 3,900

If the outsourcing opportunity is accepted then it canbe said that alternative 3 has the highest amount of total contribution margin and total operating income. The per unit contribution margin is same for alternative 1 and 3. Thus it is recommended for FinePrint to accept the outsourcing opportunity from Bradley. However, the above analysis suggests that accepting the special order from Jenkins will not be profitable in any of the case whether FinePrint fulfill the special order by their own facility or by using the outsourcing option.....................................

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