In order to find out the costs of goods manufactured by the company, numerous factors are to be taken into consideration by the financial analysts of the firm. First and foremost, the one shall take into consideration the costs for product design per new card, and then the batch setup costs are to be considered. The next step is to consider the costs of conversions and shipping costs. This stage is followed by the consideration of the selling and administrative costs. Having calculated the amount of the financial resources that have been spent to the aforesaid expense, the next step of the financial analyst is the division of the sum into the number of the commodities produced/ batches assembled. Following this algorithm, the one easily deducts costs per item and per batch.
The business offer of Mall-Mart department store is very lucrative from the financial point of view. This market option allows the company to accrue $ 6000 in revenues (although profit shall be separately deducted). But more importantly, this scheme helps the firm to attract and possibly to retain the new customer. The sales for the previous year indicate that the number of sales of the firm’s output is significant. Therefore, the conclusion can be drawn that the manufacture of the company is in great demand among the customers. On this assumption, the offer of the prospective customer shall be undoubtedly accepted and may be defined as ‘highly desirable’ for the company.
The difference in calculations between the groups A and B is that in the first model, the one shall not considered prospective future sales in order to define the attractiveness of the possible transaction. Besides, in the second case the necessity to finance the product design and production mastering is absent, due to the fact that previous successful patterns have already been elaborated and financed.
Obviously, the most reasonable marketing decision will be the option to increase the production of the new commodities, Lion Tamer, while not completely abstaining from the production of the Bear Detectors. The fact that the production of the one unit of Bear Detector requires 2 hours of assemblage and Lion Tamer require only 1 fabrication hour and half an hour of the manual labor is the decisive factor, although the costs for the manual labor shall be considered. Overall, the previous accounting year indicated that the gross profit accrued by the Lion Tamer was more than 60% bigger than the profits brought by the sales of Bear Detectors.
The main peculiarities are that the production of the Lion Tamer require a portion of manual labor, this production is less time-consuming and is in greater demand among the customers. Besides, it must be particularly accentuated that the major competitor of the area is likely to file for a bankruptcy soon. The comparative analysis of the costs of goods indicates that the production of Beat Detectors is more costly while being less profitable for the company. ($ 530 000 of the expenses incurred by the Beat Detectors in contrast with the $ 81 000 associated with the manufacture of Lion Tamer items).
Therefore, the conclusion is twofold. Although, in order to increase profits it seems to be reasonable to cease the production of the Bear Detectors entirely, the supply of the Lion Tamer items has not already proved it’s stability in demand. Moreover, the labor costs are volatile in their nature and shall be permanently considered. If the labor costs increase, the profitable project may easily turn into the losing one. Therefore, the most advisable option for the Board of Directors is the decrease in the production of Bear Detectors (but not the total cancellation of the project) and the experimental increase in the production and sales of the Lion Tamer.