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Printer Company Analysis

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Pensacola Printer Company manufactures printers for use with home computing systems. The firm currently manufactures both the electronic components for printers and the plastic cases in which the devices are enclosed. Jim Cassanitti, the production manager, recently received a proposal from the Universal Plastics Corporation to manufacture the cases for Pensacola's printers. If the cases are purchased outside, Pensacola Printer Company will be able to close down its Printer Case Department. To help decide whether to accept the bid from Universal Plastics Corporation, Cassanitti asked Pensacola's controller to prepare an analysis of the costs that would be saved if the Printer Case Department were closed. Included in the controller's list of annual cost savings were the following items:

Building rental (The printer Case Department occupies one-sixth of the factory building, which Pensacola rents for $180,600 per year).....................................$30,100
Salary of the Printer Case Department supervisor................................$48,000

In a lunchtime conversation with the controller, Cassanitti learned the Pensacola printer company was currently renting space in a warehouse for $41,000. The space is used to store completed printers. If the Printer Case Department were discontinued, the entire operation could be moved into the factory building and occupy the space vacated by the closed department. Cassanitti also learned that the supervisor of the Printer Case Department would be retained by Pensacola even if the department were closed. The supervisor would be assigned the job of managing the assembly department, whose supervisor recently gave notice of his retirement. All of Pensacola Printer Company's department supervisors earn the same salary.

Required:
1. You have been hired as a consultant by Cassinitti to advise him in his decision. Write a memo to Cassinitti commenting on the costs of space and supervisory salaries included in the controller's cost analysis. Explain in your memo about the "real" costs of the space occupied by the Printer Case Department and the supervisor's salary. What types of costs are these?

2. Independent of your response to requirement (1), suppose that Pensacola Printer Company's controller had been approached by his friend Jack Westford, the assistant supervisor of the Printer Case Department. Westford is worried that he will be laid off if the Printer Case Department is closed down.
Westford has asked his friend to understate the cost savings from closing the department, in order to slant the production manager's decision toward keeping the department in operation. Comment on the controller's ethical responsibility.

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Answer---
MEMO TO CASSINITTI----

The printer case department is carried on in the factory building and it occupies about one-sixth of the factory building. And because of this, the Pensacola Company has to hire a warehouse for storing completed printers. This costs the company an additional $41,000. Hence by closing the printing case department the company will save $41000. This is the additional cost which the company has to bear because of occupation of factory building by the case department. The rent of the factory building is a fixed commitment which the company has to bear, whether the case department is running or not. So in ay case, that cost is sunk and fixed. Hence the actual savings of the company is $41000. So if the company closes the printer case department, and stores ...

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A small magazine publisher wants to determine the best combination of two possible magazines to print for the month of July. Backyard magazine, which he has published for years, is a steady seller. The publisher wants to make sure he prints at least 400 copies to meet his demand from the newsstands. Porch is a new venture, and has received the benefit of a great deal of advance publicity. The publisher is hoping that by positioning it near Backyard he will pick up some spill over demand from his regular readers. Also, he is hoping that the advertising campaign will bring in a new type of reader from a potentially very lucrative market. He wants to print at least 300 copies of Porch. The cover price for Backyard is $3.50; he is pricing Porch at $4.50, because of the magazines in this market seem to be able to command a higher price. The publisher has 50 hours of printing time available for this production run. He also has 30 hours in the collation department, where the magazines are actually assembled. Backyard requires 2.5 minutes per copy to print and 1.8 minutes per copy to collage. Because of its larger size, Porch will require 3 minutes to print and 2 minutes to collate. The publisher wants to maximize his revenues

1. Answer the following items concerning the Backyard case:
a. What is the publisher trying to optimize? Is he trying to maximize or minimize?
b. Write the objective function to support this analysis.
c. What inputs do you need to support your analysis?
d. Is there any extraneous data you have been given that you will not need?
e. What criteria has the publisher given you to support the analysis?
f. Create a spreadsheet model that supports your analysis.
g. Look carefully at your criteria. Surplus time is when you have extra time that is not being used. Is all of the printing time being used? What about the collation time? Describe what this may mean to you as the publisher.

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