Case Analysis on Tenalpina Tools
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DE LA SALLE UNIVERSITY – MANILA
MASTER OF BUSINESS ADMINISTRATION
Tenalplina Tools: An Entrepreneur’s Dilemma
In Partial Fulfilment of the Requirements
in Management Accounting (ACC535M)
Submitted by:
Andrhea Arnuco
Patricia Co
Rob Miclat
Shienel Mujar
Submitted to:
Prof. Jose Lauro Cruz
- CASE BACKGROUND
Tenalpina Tools is a business owned and managed by Giulia Ferrate, a recent MBA graduate who took an internship at a retailing company that specialized in mountaineering equipment. She developed a high-quality, lightweight titanium piton, a tool used in mountain climbing. The production of the pitons was contracted in a company that can do drop forging - which is an integral part of the piton’s production process. Original trial order of piton was 1,000 units with a reorder rate of 1,000 unit per month. The retailer paid Giulia $11.00 per unit of piton plus its shipping cost. For a pack of 1,000 pitons, the forged charged her $9,000. After accounting the material waste and recovery, the cost of the titanium alloy bars was $1.45 per piton. Giulia sole customer has made an offer of significant guaranteed demand for a two-year period, with a purchase volume of at least 4,000 units per month at $10.50 per unit. Almost simultaneously, she is presented the opportunity to take over the forge operation of her contract manufacturer. She is trying to decide what would happen to her business under such a scenario.
- STATEMENT OF THE PROBLEM
Given the opportunity of owning a forge operation and the idea of developing a new product, what will Giulia need to do expand her business in order to gain a higher profit?
- OBJECTIVES
This case aims to:
- To decide on whether to purchase a forging company or not, given all the cost associated for its operation.
- To identify possibilities of growth for Tenalpina Tool Company
- AREAS FOR CONSIDERATIONS AND ASSUMPTIONS
- Giulia’s trial order of piton is $1,000 units
- Selling price for piton $11.00 per unit
- Expenses in processing a piton
Forge processing fee | $9,000/1,000 units |
Titanium alloy bar | $1.45/piton |
- Giulia’s customer offers a guaranteed purchase of 4,000 units per month at $10.50/unit for the length of 2 years.
- Stanley who is the contract manufacturer wants to sell his business to Giulia.
- Stanley is operating with a minimum crew of 6 workers.
- Giulia’s volume of 1,000 units consumed only 1 week of labor capacity per month
- Purchase price for all business asset would be under $100,000
- Administration cost would average about $600/month
- Below is Stanley’s forge operating expense.
Labor (6 workers) | $345,000/year |
Lease cost for the building, maintenance and utility cost | $33,000/year |
Depreciation of Equipment | $14,344/year |
Cost of Supplies | $110/for every 1,000units |
Electricity | $1,908/1,000units |
$1,962/1,300units |
- CASE ANALYSIS PROPER
The figure shows Giulia’s profit for 1,000 units of piton processed in the forge.
No. of units | 1,000.00 |
Price/unit | $11.00 |
Revenue | $11,000.00 |
Manufacturing cost | $9,000.00 |
Cost of titanium bar | $1,450.00 |
Total Expense | $10,450.00 |
Profit | $550.00 |
If Giulia decide to buy the forge company and accept the offer of his customer, based on the data given the breakeven volume and sales is the following:
No. of units | 4,000.00 |
Price/unit | $10.50 |
Cost of piton/unit | $1.45 |
Cost of Supplies/unit | $0.11 |
Labor/unit | $7.19 |
Electricity/unit | $1.70 |
Variable Cost | $10.45 |
Depreciation | $1,196.25 |
Rent | $2,750.00 |
Admin | $600.00 |
Fixed Cost | $4,546.25 |
Total Fixed Cost | $4,546.25 |
Contribution Margin per Unit | 0.053 |
Breakeven volume | 86,595 |
Contribution % | 0.005 |
Breakeven Dollars | $ 909,250.00 |