Ace Manufacturing
Comments and Solutions for Lesson 4 Cases
Of all the topics in this course, many students find Lesson 4 to be the most frustrating. I think this may be due in part to an apparent contradiction: there are lots of numbers and equations to work with, but surprisingly little certainty in our conclusions. I share your frustrations at times. Fortunately, these cases are the only “strictly financial” case studies … the only ones where number crunching is an end unto itself. However, basic financial analysis will always be an important part of our toolkit for making pricing decisions.
The document which follows contains the “answers” to these two case study assignments: Ace Manufacturing and Healthy Spring Water. Despite the financial emphasis, they are similar to the previous cases insofar as they're intentionally open-ended and somewhat vague to encourage you to draw out all of the contingencies and factors that need to be considered. They're intended to stimulate thinking. If you feel a bit frustrated by that, it probably means they're working. Only after you’ve identified the issues and concepts that are relevant to the questions can you start to focus your efforts on how to solve the problem.
This is my answer key (of sorts) for the two assigned cases. I KNOW how much many of you struggled with this case and your efforts were not in vain. Having had to slog through all of the confounding complexities of financial analysis is necessary to fully prepared you for what may lie ahead in your professional endeavors.
Ace Manufacturing
1. What is the relevant unit cost for making this pricing decision? There are two primary alternatives that you might consider when approaching this question. Those of you who have this type of responsibility in a “real world” context are likely to suggest that fixed costs and G&A costs should be allocated equally/proportionately across the two products. At the opposite extreme, you might have chosen
Of all the topics in this course, many students find Lesson 4 to be the most frustrating. I think this may be due in part to an apparent contradiction: there are lots of numbers and equations to work with, but surprisingly little certainty in our conclusions. I share your frustrations at times. Fortunately, these cases are the only “strictly financial” case studies … the only ones where number crunching is an end unto itself. However, basic financial analysis will always be an important part of our toolkit for making pricing decisions.
The document which follows contains the “answers” to these two case study assignments: Ace Manufacturing and Healthy Spring Water. Despite the financial emphasis, they are similar to the previous cases insofar as they're intentionally open-ended and somewhat vague to encourage you to draw out all of the contingencies and factors that need to be considered. They're intended to stimulate thinking. If you feel a bit frustrated by that, it probably means they're working. Only after you’ve identified the issues and concepts that are relevant to the questions can you start to focus your efforts on how to solve the problem.
This is my answer key (of sorts) for the two assigned cases. I KNOW how much many of you struggled with this case and your efforts were not in vain. Having had to slog through all of the confounding complexities of financial analysis is necessary to fully prepared you for what may lie ahead in your professional endeavors.
Ace Manufacturing
1. What is the relevant unit cost for making this pricing decision? There are two primary alternatives that you might consider when approaching this question. Those of you who have this type of responsibility in a “real world” context are likely to suggest that fixed costs and G&A costs should be allocated equally/proportionately across the two products. At the opposite extreme, you might have chosen