Refer to the Cox Cable and Wire-Company case. In the role of Meredith, design a spreadsheet that will evaluate the profitability of any particular production and delivery schedule.
a. Find a machine schedule and a corresponding inventory and shipment schedule that meets demand. What is the profitability of this schedule?
b. Suppose that material costs for both products were to rise by a specific percentage. At what percentage increase would profitability drop to zero?
c. Construct a table showing how profitability varies with changes in the selling price of Plastic reels. Repeat for Teflon reels. Which price has a greater effect on profitability?
Refer to the Cox Cable and Wire Company case,
Meredith Ceh breathed a sigh of relief. Finally, all the necessary figures seemed to be correctly in place, and her spreadsheet looked complete. She was confident that she could analyze the situation that John Cox had described, but she wondered if there were other concerns she should be addressing in her response.
Mr. Cox, president of Cox Cable and Wire Company, and grandson of the company's founder, had asked Meredith to come up with plans to support the preliminary contract he had worked out with Midwest Telephone Company. The contract called for delivery of 340 reels of cable during the summer. Hewas leaving the next day to negotiate a final contract with Midwest and wanted to be sure he understood all of the implications.
According to Mr. Cox, he had been looking for a chance to become a supplier to a large company like Midwest, and this seemed to be the right opportunity. Demand from some of Cox Cable's traditional customers had slackened, and as a result there was excess capacity during the summer. Nevertheless, he wanted to be sure that, from the start, his dealings with Midwest would be profitable, and he had told Meredith that he was looking for cash inflows to exceed cash outflows by at least 25 percent. He also wanted her to confirm that there was sufficient capacity to meet the terms of the contract. He had quickly mentioned a number of other items, but those were secondary to profitability and capacity.
Background
The Cox Cable and Wire Company sold a variety of products for the telecommunications industry. At its Indianapolis plant, the company purchased uncoated wire in standard gauges, assembled it into multi wire cables, and then applied various coatings according to customer specification. The plant essentially made products in two basic families-standard plastic and high-quality Teflon. The two coatings came in a variety of colors, but these were changed easily by introducing different dyes into the basic coating liquid.
The production facilities at Indianapolis consisted of two independent process trains (semi automated production lines), referred to as the General and National trains, after the companies that manufactured them. Both the plastic coated and the Teflon-coated cable could be produced on either process train; however, Teflon coating was a faster process due to curing requirements. Planning at Cox Cable was usually done on an annual and then a quarterly basis. The labor force was determined by analyzing forecast demand for the coming year, although revisions were possible as the year developed. Then, on a quarterly basis, more specific machine schedules were made up. Each quarter the process trains were usually shut down for planned maintenance, but the maintenance schedules were determined at the last minute, after production plans were in place, and they were often postponed when the schedule was tight.
As a result of recent expansions, there was not much storage space in the plant. Cable could temporarily be stored in the shipping area for the purposes of loading trucks, but there was no space for cable to be stored for future deliveries. Additional inventory space was available at a nearby public warehouse.
Meredith had become familiar with all of this information during her first week as a summer intern. At the end of the week, she had met with Mr. Cox and he had outlined the Midwest contract negotiation.