Fineprint Case Study

FinePrint Company

Case Assignment

Read the FinePrint Company case.  Then answer the following independent questions.  Assume that John Johnson’s goal is to maximize profit for FinePrint.  Be sure to show computations to support your answers.

 [pic 1]        [pic 2]

                 Exhibit 1                                                                      Exhibit 2

Questions:

1. Assume FinePrint is currently operating at full capacity of 150,000 brochures per month when Abby Jenkins submits her special order.  Costs are shown in Exhibit 1 of the case.  Should John Johnson accept the special order?  Why or why not?  [In answering, assume Ernest Bradley does not offer to handle 30,000 brochures and that FinePrint cannot increase capacity beyond 150,000 brochures per month.]

Before John decides whether he accepts the special order or not, from the Exhibit 1, we can calculate the profit.

If he accepts, the special order of 25,000 should be paid for $10 per 100 brochures, and $1 per 100 brochures would be saved for the order, so

Revenue= 25,000/100 * 10 + (150,000-25,000)/100 * 17 = $23,750

Cost=22,500 – 25,000/100 * 1 = $22,250

Profit = 23750 – 22250 = $1,500

If not, Revenue = 150000/100 * 17 = $25,500

Cost= $22,500

Profit = 25,500 – 22,500 = $3000

Therefore, comparing the results John should not accept the order and it can make max profit $3,000.

1. Now assume that monthly printing capacity is 170,000 brochures and that current production is 150,000 brochures per month when Abby submits her special order.  Should the special order be accepted?  [In answering, assume Ernest Bradley does not offer to handle any brochures.]

When monthly printing capacity is 170,000 brochures, we should consider recalculating variable costs (Exhibit 2) and total costs.

 If John accepts the order, from the Exhibit 2, and $1 per 100 brochures would be saved for the order