Hi, I need some assistance deciding which option is the best.
Monmouth Thermics, a subsidiary of General Standard, is a large conglomerate which manufacturers thermometers. Your primary customers are large companies who purchase the thermometers to use for specialty advertising. Over the last several years, however, low-cost overseas competitors have pulled away many of the company's long-time customers. General Standard has become concerned about the loss of market share and declining profit. You, as Monmouth general manager, have been asked to put together a recovery plan to present to the General Standard board of directors. Your management team has pulled together the following options:
- Cut costs by imposing an across-the-board pay cut for all personnel. This would save enough money to bring the company back to profitability.
- Expand operations into specialty printing. Currently the thermometers are sold to other companies for printing. The additional printing expense would add 23% to the cost of each unit, but would also add 40% to the unit sale price.
- Expand sales of the current thermometer line to retail outlets such as WalMart and Target.
- Manufacture and market a new product the R&D department has developed, a combination thermometer/barometer housed in an oak case. The product would be marketed through specialty stores. Two new production lines would have to be added for the barometer and for the wood case. The "Thermbarometer" could be manufactured for about $30 per unit and sold for $100.
Which option would you recommend to the General Standard board of directors? Defend your choice.
The first option is never a good idea except as a last resort. While you identify costs for making new units, you do not identify costs for new equipment and labor, resources and facility space. With those points made, I would suggest either moving into printing, expanding the market into other large retail outlets, with manufacturing the new product as a ...
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