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
 Revenue30,600
 Variable Cost
 Direct Material6,000
 Direct labor1,500
 Overhead1,500
 Sales1,800
 Total Variable Cost10,800
Cost of Outsourcing2,400
 Contribution Margin 17,400
 Fixed Cost
 Direct Labor3,000
 Overhead3,375
 Sales1,875
 Corporate3,750
 Total Fixed Cost12,000
 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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