Consider the Dublin Shirt Company in comprehensive example 1 and the additional material provided below.

Two recent developments that may have an impact on the company should be noted. First, in the present climate, the Dublin Shirt Company can only afford to reduce its prices if it can cut costs. The sales director suggests that the company can lower its quality inspection costs by reducing inspections, which will improve on-time delivery rates. This proposal is to be discussed at the next board meeting.

Second, last week, the sales director proposed that the company should enter the American market for women’s sports shirts, where comparable shirts sell for the equivalent of €9.75. This is considered to be an excellent selling price, given the small size of the shirt. Overall production costs would be similar to medium-sized shirts and normal selling, distribution and administration costs would amount to €3 per unit. Each shirt would require dyeing and also normal embroidery.

A marketing consultant has obtained information about specific features required for the female wearer. Working in conjunction with the firm’s cost accountant, he has presented information on these features and approximate cost as follows.

It is anticipated that the Dublin Shirt Company will sell these products through an agent, with whom they have never dealt but who would like to place an order for 100 000 shirts this year. The company recognises that this (new) market will require additional selling costs in the United States, equivalent to €1 per shirt. The Dublin Shirt Company requires a contribution of €2 per unit but the goods are to be invoiced in US dollars unlike current sales that are invoiced in euro.

Required

(a) What is the target manufacturing cost for these shirts? Indicate what features, if any, should be added to the shirts already produced, in keeping with your target cost calculations.

(b) Identify the strategic and international business factors that the management of the Dublin Shirt Company should consider in making this decision.

Transcribed Image Text:

Cost (per unit) to add Importance ranking (5 = most important) Feature required by female wearer Hanger (on inside of collar) Hanger (on outside of shoulder) Patch (breast) pocket Embroidery on single sleeve Double stitching (on V-neck etc.) €0.02 2 €0.04 3 €0.10 3 €0.25 €0.08 4