Managerial Accounting
Week 2
Group Discussion
Week 2: Group Work- Harvard Business Case 1
Group Members: Michael Fant, Jennifer Meyering, Christopher Presley, James Ramson, Jacinta Stockton, Alistair Winfield, Judy Zeitang What action should Hans Thorborg take? Why?
Our analysis of this case is to advise Hans Thorborg to move to producing the plastic rings. It is important for PWI to evolve with the industry, and refusing to transition to the new product could have a devastating impact on their future sales. Although PWI has a strong presence in the market, it’s stated in the case study that the plastic rings have at least four times the wearing properties of the steel rings. Therefore, while the steel ring currently lasts for an …show more content…

Reduce price down to total cost – that’s the lowest we can go before losing money. Opportunity cost is going to be $1070 .35 (selling price – cost). Option B – Continue processing the steel but get into the plastic ring market right away. 3rd from bottom on the second page paragraph. $7500 needed in additional cost to get the necessary tools and equipment to produce plastic. Advantage – step up above the other sellers because some cannot use the plastic, can still sell some steel. If plastic it lasts 4xs as long, won’t buy as much. Plant capacity – can they produce both of these rings simultaneously to meet demand. Convert some of the workers to do plastic rings during the slow period (70% of the workforce – slow, possible layoff). The process is the same; material is the only difference so no training cost would be incurred. Disadvantage is possible plant capacity in producing both and we lose out on the opportunity cost of getting ahead of the other markets using all plastic. 10% is the market that is buying plastic right now. Ad demand increases for more plastic it will increase production. Need 90% of the steel cost and 10% of the plastic $997.11 is the cost of the steel rings at a 9 to 1 ratio. Cost for the plastic is $27.97 Option C – Convert to all plastic. Lose all of the money for the steel - $110,900. Only 10% of the market is using plastic now. Make more in the long run once it picks up,