Elizabeth’s Country Wares

...

- Outsource Decal production

C1. This option will meet the demand for 3000 CPs (Exhibit 3).

C2. EWC will earn a profit of $2515 on an annual basis. This option will

not be viable from a long term profit point of view since every design change

will induce a charge of $500. (Exhibit 5)

C3. Quality of the product will remain unchanged and will give Mrs Hines

the flexibility to choose a wide range of colours and designs.

C4. This option will be in line with the personal ambitions of Mrs Hines.

- Outsource production of CPs to China

C1. The demand for the CPs will be met as per the suppliers

conditions. However, the 40-day lead requested by the supplier carries a

potential risk in meeting the demand for the CPs promptly.

C2. EWC will earn a profit of $49,650 highest among the four options, on

an annual basis. (Exhibit 6)

C3. The potential risk in this option is the weak enforcement of regulatory

policies which can affect the product safety and quality. Despite assurances

from the suppliers with regards to usage of lead, it is a risk factor from

ECW’s reputational point of view. It can cause severe damage to her

products’ demands.

C4. Since this option enables to move the production factors completely to

China, it will free up her time completely so that she can focus on other

products of ECW.

Recommendation

It is recommended that Mrs Hines proceed with the option of Decal production.

Action Plan

- Make the required arrangements in the workshop to accommodate the new equipment.

- Set up a training schedule for the part-time employees so that they can undertake the tasks of border painting, loading and application of the decals.

- Ensure that samples of CPs in each design are set aside so that it can be used to compare the quality of the output once decal production is undertaken.

* Number of words: 946

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Exhibits

Exhibit 1: Data related to current production capability

Availability of Mrs Hines for CP production

8hrs/week

Time taken by Mrs Hines to work on one CP

12.5 mins

Number of CPs worked on in a year

1997

Cost per CP

$2.92

Total Cost for 1997 CPs

$5831

Labour Charge

$15/hour

Time spent by the greenware worker per CP

20 min

Time required to unload, glaze and reload per 12CPs

105 min

Time required for packaging per 12CPs

24 min

Amount of time the workers are occupied per CP

30.75 mins

Total Labour Cost for the year

$15,352

Total Annual Revenue

$49,925

Total Annual Cost for the production of CPs

$21,183

Total Cost per CP

$10.61

Profit

$28,742

Exhibit 2: Data related to the annual incremental profit due to sales of Butter churn lamps

Retail Price of the Butter Churn Lamp

$350

Margin (%)

60

Cost Price

$140

Profit

$210

Additional Units of Butter Churn Lamp sold in a week*

2

Incremental Profit generated by selling Butter Churn Lamp

$27,300

*Additional 2 to 3units are sold in a week. Assuming two as the minimum value

Exhibit 3: Maximum CPs produced in Decal purchase

Number of Kilns which are fired once in a day

2

Available number of runs in a year

365

Number of runs for which Kilns used for different purpose other than CP

230

Number of cycles for which the Kilns are available for CP Production

500

Number of CPs per run

12

Maximum number of CPs produced