Fin571 Wk 4 Guillermo
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- Date Submitted: 03/05/2013 08:53 PM
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Guillermo Week Four
Case Summary
Guillermo owns a hand-carved furniture store in Sonora, Mexico, which reaps the benefits of inexpensive labor and easy availability of the necessary materials (i.e. lumber). Guillermo earned a decent profit on his furniture sales, in part, through paying standard low wages. However, recent changes have reduced Guillermo’s profits. In addition, an overseas competitor employed an expensive high-tech automated system that produced a high-efficiency, low-cost production method, which cut the cost of items identical to those that Guillermo had crafted. Guillermo does not want to acquire or be acquired by another company or acquiring another company. Instead he is considering a partnership. Guilllermo felt that he could convince this company to allow him to distribute their product, while still maintaining some of his own furniture production.
Introduction
In order to gain market share and profit in an evolving market, Guillermo must make informed investment decisions. To that end, he is faced with a choice of three alternatives: (1) maintain the currently used approach; (2) invest in the high-tech approach; or (3) broker merchandise from the larger manufacturer. Guillermo most easily can forecast costs using the current approach. However, as he has noted a drop-off in sales while implementing this method, it is likely that this approach needs to be modified. The high-tech approach can be used to increase production by 50%, but it involves an expensive up-front investment and an increase in direct labor costs, plant overhead, and income tax expense, relative the current method. The broker approach also will increase production levels; however, Guillermo will pay an opportunity cost of prioritizing the manufacturer’s product over his own. In addition, many of the same costs that increase using the high-tech approach also do so using the broker approach.
Guillermo must compare the three available options systematically to...
Case Summary
Guillermo owns a hand-carved furniture store in Sonora, Mexico, which reaps the benefits of inexpensive labor and easy availability of the necessary materials (i.e. lumber). Guillermo earned a decent profit on his furniture sales, in part, through paying standard low wages. However, recent changes have reduced Guillermo’s profits. In addition, an overseas competitor employed an expensive high-tech automated system that produced a high-efficiency, low-cost production method, which cut the cost of items identical to those that Guillermo had crafted. Guillermo does not want to acquire or be acquired by another company or acquiring another company. Instead he is considering a partnership. Guilllermo felt that he could convince this company to allow him to distribute their product, while still maintaining some of his own furniture production.
Introduction
In order to gain market share and profit in an evolving market, Guillermo must make informed investment decisions. To that end, he is faced with a choice of three alternatives: (1) maintain the currently used approach; (2) invest in the high-tech approach; or (3) broker merchandise from the larger manufacturer. Guillermo most easily can forecast costs using the current approach. However, as he has noted a drop-off in sales while implementing this method, it is likely that this approach needs to be modified. The high-tech approach can be used to increase production by 50%, but it involves an expensive up-front investment and an increase in direct labor costs, plant overhead, and income tax expense, relative the current method. The broker approach also will increase production levels; however, Guillermo will pay an opportunity cost of prioritizing the manufacturer’s product over his own. In addition, many of the same costs that increase using the high-tech approach also do so using the broker approach.
Guillermo must compare the three available options systematically to...