There are four alternatives that Johnson can pick to avail the available opportunities Īlternative 1: He should reject offers of both Abbie Jenkins and Ernest Bradley and continue operating on full capacity.Īlternative 2: He should accept the offer by Abbie Jenkins and print 25000 brochures at $10 for 100 brochures.Īlternative 3: He should accept the offer by Ernest Bradley and get 30000 brochures print at the price of $8 of 100 brochures.Īlternative 4: He should accept both the offers by Abbie Jenkins and Ernest Bradley and increase his operating capacity simultaneously.įor the analysis of all the above given four alternatives “contribution margin” has been calculated and used as a basis for decision-making.The contribution margin provides a way to implement the idea that as each unit of product is sold, a set amount of income can be reserved to pay fixed costs (Tinsley, 2004). Decision tree for the given problem can also be constructed as FinePrint can fulfill the special order from its normal operating capacity or it can also fulfill the order by using outsourcing option (Refer to figure 1). The decision management method that has been used in the analysis calculates “contribution margin.” The total contribution margin, the total operating income and the per unit contribution margin are the basis on which the decision will be made. If the company makes a wrong decision and fulfill the special order then scarce resources of the firm will get wasted as they will not be directed towards future profitable projects. This decision demands a lot of effort as correct judgement will determine the future profitability of the company. HOW MUCH EFFORT IS REQUIRED TO INCREASE THE PRODUCTION CAPACITY? WHICH ASPECTS OF THIS DECISION REQUIRE THE MOST EFFORT? Therefore, he should develop the facility to print low-cost brochures in order to to cater special order customers. Since the past, Johnson had encountered slight changes in the cost of orders but if he would have increased his capacity of production then he could cater these special orders. The facility is currently running at full capacity however, the business should increase its production level. "ĪSSUMPTIONS ABOUT THE CURRENT AND FUTURE BUSINESS ENVIRONMENT In making his decision, he must consider the relevance of certain costs, the behavior of these costs, and the extent to which it has limited capabilities. John Johnson, owner of FinePrint, has few possibilities to consider: (1) whether to accept a one-time special order printing (case), (2) whether to outsource some of its printing to another printing company (case B, UVA- C-2194), and (3) whether to accept a one-time special order and outsource it to another printer (case C, UVA-C-2195). Lynch Source: Darden School of Business 3 pages.
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