Analyze two potential risks identified during the interviews with Cox Cable personnel by looking at the effects of a range of plausible values of that parameter, and detailing the consequences. Include a graph for each.

The contract called for delivery of $340$ reels of cable during the summer. Demand from some of Cox Cable$$s traditional customers had slackened, and as a result, there was excess capacity during the summer. Nevertheless, he wanted to be sure that, from the start, his dealings with Midwest would be profitable, and he had told Meredith that he was looking for a profitability target of at least $25\%.$ He also wanted her to confirm that there was sufficient capacity to meet the terms of the contract. He had quickly mentioned a number of other items, but those were secondary to profitability and capacity. The plant essentially made products in two basic families$$ standard plastic and high$$quality Teflon. The production facilities at Indianapolis consisted of two independent process trains $($semiautomated production lines$),$ referred to as the general and national trains, after the companies that manufactured them. Both plastic$$coated and the Teflon$$coated cable could be produced on either process train; however, Teflon coating was a faster process due to curing requirements. Planning at Cox Cable was usually done on an annual and then a quarterly basis. The labor force was determined by analyzing forecast demand for the coming year, although revisions were possible as the year developed. Then, on a quarterly basis, more specific machine schedules were made up$.$ Each quarter, the process trains were usually shut down for planned maintenance, but the maintenance schedules were determined at the last minute, after production plans were in place, and they were often postponed when the schedule was tight. Due to recent expansions, there was not much storage space in the plant. Cable could temporarily $$ 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.

The preliminary contract was straightforward. Midwest had asked for the delivery quantities outlined in Exhibit $4\mathrm{.}1.$ Prices had also been agreed on$,$ although Mr$.$ Cox had said he wouldn$$t be surprised to find Midwest seeking to raise the Teflon delivery requirements during the final negotiation. Jeff had provided her with data on production times $($Exhibit $4\mathrm{.}2),$ which he said were pretty reliable, given the company$$s extensive experience with the two process trains. He also gave her the existing production commitments for the summer months, showing the available capacity given in Exhibit $4\mathrm{.}3.$ Not all of these figures were fixed, he said. Apparently, there was a design for a mechanism that could speed up the general process train. Engineers at Cox Cable planned to install this mechanism in September, adding $80$ hours$/$month to capacity. $$We could move up our plans, so that the additional $80$ hours would be available to the shop in August,$$ he remarked. $$But that would probably run about $$900$ in overtime expenses, and I$$m not sure if it would be worthwhile.$$ After putting some of this information into her spreadsheet, Meredith spoke with the plant$$s Controller, Donna Malone, who had access to most of the necessary cost data. Meredith learned that the material in the cables cost $$160$ per reel for the plastic$$coated cable and $$200$ for the Teflon$$coated cable. Packaging costs were $$40$ for either type of cable, and the inventory costs at the public warehouse came to $$10$ per reel for each month stored. $$That$$s if you can get the space,$$ Donna commented. $$It$$s a good idea to make reservations a few weeks in advance; otherwise, we might find they$$re temporarily out of space.$$ Donna also provided standard accounting data on production costs $($Exhibit $4\mathrm{.}4).$ According to Donna, about half of the production overhead consisted of costs that usually varied with labor charges, while the rest was depreciation for equipment other than the two process trains. The machine depreciation charges were broken out separately, as determined at the time the machinery was purchased. For example, the general process train originally cost $$500,000$ and, for tax purposes, had an expected life of $5$ years, or about $10,000$ hours; hence its depreciation rate of $$50$ per hour. Making what she felt were reasonable assumptions about relevant cost factors, she was able to optimize the production plan, and she determined that it should be possible to meet the $25\%$ profitability target.