Giulia Ferrato, a recent MBA graduate, has developed a high-quality, lightweight titanium piton, a tool used...

 

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Giulia Ferrato, a recent MBA graduate, has developed a high-quality, lightweight titanium piton, a tool used in mountain climbing. She is currently contracting for the production of the pitons. At the time of the case, her sole customer has made an offer of significant guaranteed demand for a two-year period, and, almost simultaneously, she is presented the opportunity to take over the forge operation of her contract manufacturer. She is trying to decide what would happen to her business under such a scenario. Keywords: Business model canvas; Cost structure; Breakeven analysis; Operating leverage; Entrepreneurial risk; Relevant costs Learning Objective The case introduces students to a woman who is pursuing a new business opportunity and is facing a decision as to whether or not to switch from a business model with outsourced production to one where she directly manages production. At a technical skills level, the case provides ample opportunity to: practice breakeven analysis, including cash breakeven. explore context-based cost behaviour classification. use CVP modelling as a "Swiss Army Knife" tool to explore profit sensitivity along various dimensions. • introduce the concept of operating leverage. 1. Giulia is clearly intrigued by the options that have just opened for her. If she were to accept the customer contract offer and take over the forge, how would her business model change? (Be sure to address as many dimensions of the business model as possible, but particular attention to the two primary financial decisions-revenue stream and cost structure). 2. Using Stanley Kowalchecks operating costs as your best guess data about the cost of operating the forge, perform a simple breakeven analysis for each fo the two basic business model configurations the current outsourcing arrangement and operating the forge. 3. Is the analysis above informative? How can Guilia use or extend the breakeven calculation to add more information to her understanding of the situation. 4. What other contextual information given in the case is relevant to Guilia's thinking about her next move? Why? What other data should she be seeking? Why and how would she use it? 5. Based on your analyses, what counsel would you give Guilia? Giulia Ferrato, a recent MBA graduate, has developed a high-quality, lightweight titanium piton, a tool used in mountain climbing. She is currently contracting for the production of the pitons. At the time of the case, her sole customer has made an offer of significant guaranteed demand for a two-year period, and, almost simultaneously, she is presented the opportunity to take over the forge operation of her contract manufacturer. She is trying to decide what would happen to her business under such a scenario. Keywords: Business model canvas; Cost structure; Breakeven analysis; Operating leverage; Entrepreneurial risk; Relevant costs Learning Objective The case introduces students to a woman who is pursuing a new business opportunity and is facing a decision as to whether or not to switch from a business model with outsourced production to one where she directly manages production. At a technical skills level, the case provides ample opportunity to: practice breakeven analysis, including cash breakeven. explore context-based cost behaviour classification. use CVP modelling as a "Swiss Army Knife" tool to explore profit sensitivity along various dimensions. • introduce the concept of operating leverage. 1. Giulia is clearly intrigued by the options that have just opened for her. If she were to accept the customer contract offer and take over the forge, how would her business model change? (Be sure to address as many dimensions of the business model as possible, but particular attention to the two primary financial decisions-revenue stream and cost structure). 2. Using Stanley Kowalchecks operating costs as your best guess data about the cost of operating the forge, perform a simple breakeven analysis for each fo the two basic business model configurations the current outsourcing arrangement and operating the forge. 3. Is the analysis above informative? How can Guilia use or extend the breakeven calculation to add more information to her understanding of the situation. 4. What other contextual information given in the case is relevant to Guilia's thinking about her next move? Why? What other data should she be seeking? Why and how would she use it? 5. Based on your analyses, what counsel would you give Guilia?

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