PSM Case 5-1 Garland Chocolates

For example, when the case states "annual maintenance cost...expected to increase by at least 25 percent in the next 12 months", you can assume that the cost will increase exactly 25% for the next year and remain at this level for future years.

Exhibit 1 lists the standard costs, rather than actual costs, of current operations. Exhibit 2 shows that the actual scrap rates deviate from the standard scrap rates. The standard material costs are based on the standard scrap rate rather than the deteriorated actual scrap rate. You need to adjust the standard raw/packing material costs based on the standard and actual manufacturing/packing scrap rates to calculate the actual costs. For example, if the standard raw material cost is $100 and the standard manufacturing scrap rate is 10%, it implies that although $100 worth of material is consumed in manufacturing one unit of the product, only $90 worth of the material actualy enters the product and $10 worth of material is wasted as scrap. Therefore, if the actual manufacturing scrap rate is 20%, the actual raw material cost must be $90 / (1-20%) = $112.5. The labor costs do not need to be adjusted.

Find the 10-year cashflow spreadsheets for this scenarios-maintaining the current lines, by using the excel.

Use information provided in the case.

Garland Chocolates Chapter 5 Maie a 8ig, trapurting ind fututming 127 EXHIBIT 2 Manafactariags and Paiking Line Perfermance Statisfics manufacturing line was close to the target of 80 per- that it would need six months to ramp up production of Edgecent, it was also showing signs of deterioration. The ef- worth Toffee. ficiency rate had declined to 76 percent, compared to more than 90 percent five years prior, and it had become THE TEAN MEETING increasingly more difficult to find replacement parts