FLEX STAR PREMIUM PACKAGING SOLUTIONS

Established in $2022,$ Flex Star provides premium packaging solutions utilizing cutting$-$edge equipment, advanced processes, and rigorous quality control measures. Their vertically integrated manufacturing environment o$$ers comprehensive engineering services, prepress and graphics capabilities, premium blown film production, high$-$resolution printing, solventless lamination, precise slitting, and state$-$of$-$the$-$art conversion equipment. Alex Korosky is the CEO of Flex Star; he convened a management meeting to discuss the financial performance of Flex Star along with the expansion plan that he has in mind. Alex led the meeting with his executive team and ensured the pressing important topics were discussed.

The sales manager started the meeting with credit risk management. According to the sales manager, Flex Star has an excellent credit$-$establishing process, a structured system for tracking credit periods which need to be established. Each credit application process starts with the sales manager requesting a credit application to be filled out by the customer, which the sales manager then approves for the credit limit request. The customer$$s application is then forwarded to the accounting team so it can set up the customer's account. At first glance, Alex believes this to be a good process but is wondering if improvements can be made and how progress might be measured by the executive team.

Being a manufacturing plant, Flex Star is quite concerned about direct labour costs, as they make up a major part of the cost of inventory. The recent union negotiation has caught Alex$$s atention, and after consulting with the HR manager, he has come to the realization that direct labour rate for his plant workers, along with the supervisor salaries, will soon be increased by $10\%.$ As many of the firm$$s sales contracts will be coming due in two months $($with the rate increases kicking in at about the same time$),$ it is important for the executive team to come up with a strategic plan to manage this increase.

As the labour cost conversation continued, the bill of the material topic was also brought up$.$ Alex showed the executive team Flex Star$$s typical bill$-$of$-$materials statement and outwardly wondered if there is any area, they should focus on to improve its cost. Packaging is a competitive industry, so the race of quality and pricing has always been critical in contributing to Flex Star$$s success. Below is a BOL to produce $1000$ bags, with margin of $2024$ reduced quite significantly due to unchanged pricing, an analysis needs to be done in order to help Flex Star achieve a $20\%$ margin future going forward, assuming cost of $2024$ will stay constant until the end of fiscal year $2024.$

Component Qty consume $2023$ Total Value consumed $2023$ Qty consume $2024$ Total Value consumed $2024$

Testing $5$ $ $406$ $ $50$

Resins $150$ $ $1,200168$ $ $1,512$

Pallet cover $207$ $ $1,242232$ $ $1,391$

Cores $10$ $ $5011$ $ $56$

Manufacturing Overhead $510$ $ $4,590571$ $ $5,712$

Labour Cost $185$ $ $1,850207$ $ $2,279$

Flex Star's bag$-$making division specializes in manufacturing plastic components for the small pet food market. These components are produced in high$-$volume runs, with equipment often operating around the clock for consecutive days to maintain production consistency. Additionally, the division fulfills low$-$volume orders with unique specifications. One of the machines in this department requires replacement. Currently valued at CAD $$13,000,$ the machine must be replaced due to upcoming safety regulations. This machine produces Flat botom bags of which incur fixed costs, including depreciation, the relevant details of which are as follows:

Flat botom bag $($A$)$

Sales

CAD $$100000$

Cost of sales

Variable costs $82000$

Fixed costs $15000$

$97000$

Annual profit $$3000$

Note that: All the $$xed costs $($including depreciation$)$ are directly related to the production of Flat bottom bag.

Projections indicate that current revenue and costs will increase $10\%$ each year for the next five years, aligning with the expected lifespan of the new machine under review. Introducing this new machine would reduce variable costs by CAD $$8,000$ for A$.$ Acquisition and installation costs for the new machine are estimated at CAD $$100,000,$ with a $$10,000$ residual value after five years.

Company policy dictates straight$-$line depreciation for such machinery, with a cost of capital set at $10$ percent. Alex wanted to invest in this machine but was not certain about the best approach to evaluate this investment.

As a proactive CEO, Alex has been researching the plastic industry and came across significant information. Notably, in $2021,$ the Canadian government unveiled an ambitious initiative aimed at eliminating Canada's plastic waste entirely by $2030($PMO$,2021).$ This initiative, known as Zero Plastic Waste $2030($ZPW$2030),$ underscores the escalating global concerns surrounding the environmental repercussions associated with plastic production,