FINEPRINT COMPANY

Case Analysis: Fine Print Company



Case Analysis: Fine Print Company

Introduction

FinePrint Company prints high-quality color brochures in its facility located in Charlottesville, Virginia. Currently, it has received a special order for the printing of 25,000 brochures from Abbie Jenkins and an offer for outsourcing the brochure printing services to a third party company, Small Print Shop. Main objective of this report is to assess how does each situation impacts the cost structure and profitability of the company.

Issue Identification

FinePrint Co. owner, John Johnson is facing two opportunities that make him to consider the financial and future business development prospects. These include assessing the special order, placed by John's friend Abbie Jenkins, for the delivery of 25,000 brochures at a price significantly lower than the sales price that FinePrint currently earn from its existing customer portfolio. This creates an issue for the FinePrint Company operations with respect to whether John Johnson should accept the order or not.

Second issues relates to examining the make or buy decision based on the offer given by the Ernest Bradley, owner of Small Print Shop. This requires assessing the effectiveness of the proposal considering the situation whether FinePrint should outsource printing orders or is it in better interest of the company to pursue in-house manufacturing.

These two issues requires considering the cost structure of each proposal, cost occurrence continuum, business development opportunity, and changes in the incremental revenue of the company. It also requires considering the implication of decision on the capacity constraints of the FinePrint Company.

Alternative Generation and Evaluation

There are three possible alternates available to FinePrint Company. These include accepting the special order for in-house manufacturing; accept the offer of Small Print Shop; and Outsourcing the special order of Abbie Jenkins to Small Print Shop.

John Johnson needs to make two decisions with respect to the issues identified in the above text. First it focuses on whether he should accept the special order or not; secondly, alternative solution is to decide whether he should accept the offer of Small Print Shop Co. or not. First, he had to turn down Abbie Jenkins' special request for 25,000 brochures at $10 per 100 brochures. FinePrint just didn't have the capacity to produce 25000 brochures at such a low price, especially since it didn't seem to have the potential to generate any future business beyond the special order.

Analysis shows that if FinePrint Company had the capacity to handle the 25,000 brochures special order for Abbie Jenkins, it would be a profitable order for FinePrint because a $10 price was greater than FinePrint's variable costs of printing the brochures. However, considering the impact of this order acceptance on company's current sales revenue, FinePrint Co. would face a decline of $7 per 100 brochures in terms of sales revenue derived from stopping the current orders processing in order to accommodate the 25,000 brochures order of Abbie Jenkins.

Total variable cost of manufacturing 100 brochures FinePrint company equals $6 per 100 brochures. This shows that for producing additional 100 brochures for ...