Ten Alpina Tools
III. If Giulia bought the foundry business, would the business be profitable? Support your answer with both a quantitative analysis and qualitative reasoning.
Giulia seems to be excited about the opportunity to own her own business doing something that she loves. There is a high level of uncertainty here in whether or not Giulia would make a profitable business. It seems that there is room for improvement in the current operations since all 6 workers were cross trained and they were currently only busy for about one weeks worth of labor time per month. Giulia does have an MBA and may be able to recognize ways to use the resources more efficiently and keep production costs down. Giulia will need to practice her strategic thinking to determine how to balance the resources on hand to make this situation work. If she can offer the units for $11.70 or higher, she may be able to maintain the business but she will need to drive down the production costs to sustain profits. If any equipment needs repairs or the building needs renovations, those costs are not going to be covered under her current pricing plan. Also, if production increases, variable costs may also increase so it will be important for Giulia to pay close attention to this.
Units
Cost per Unit
Total
Description
Expenses
48,000
$10.50
$504,000
Revenue
48,000
$7.19
$345,120
Salaries
Fixed
48,000
$1.45
$69,600
Materials
Variable
$33,000
33000
Occupancy Costs
Fixed
48,000
$1.91
$91,680
Utilities
Variable
$14,355
1
$14,355
Depreciation for previous year
Fixed
12
600
$7,200
Administrative
Fixed
$560,955
Total Operating Costs
($56,955) profit (loss)
$100,000 Purchase Price
48,000
$11.70
$561,600
Breakeven Price would need to be at least $11.70
IV. What are the relevant risks for Giulia in this situation? What role does the quantitative analysis play is
Giulia seems to be excited about the opportunity to own her own business doing something that she loves. There is a high level of uncertainty here in whether or not Giulia would make a profitable business. It seems that there is room for improvement in the current operations since all 6 workers were cross trained and they were currently only busy for about one weeks worth of labor time per month. Giulia does have an MBA and may be able to recognize ways to use the resources more efficiently and keep production costs down. Giulia will need to practice her strategic thinking to determine how to balance the resources on hand to make this situation work. If she can offer the units for $11.70 or higher, she may be able to maintain the business but she will need to drive down the production costs to sustain profits. If any equipment needs repairs or the building needs renovations, those costs are not going to be covered under her current pricing plan. Also, if production increases, variable costs may also increase so it will be important for Giulia to pay close attention to this.
Units
Cost per Unit
Total
Description
Expenses
48,000
$10.50
$504,000
Revenue
48,000
$7.19
$345,120
Salaries
Fixed
48,000
$1.45
$69,600
Materials
Variable
$33,000
33000
Occupancy Costs
Fixed
48,000
$1.91
$91,680
Utilities
Variable
$14,355
1
$14,355
Depreciation for previous year
Fixed
12
600
$7,200
Administrative
Fixed
$560,955
Total Operating Costs
($56,955) profit (loss)
$100,000 Purchase Price
48,000
$11.70
$561,600
Breakeven Price would need to be at least $11.70
IV. What are the relevant risks for Giulia in this situation? What role does the quantitative analysis play is