Read PSM Case $5-1$ Garland Chocolates and prepare three $10-$year cashflow spreadsheets for three scenarios$---$maintaining the current lines, upgrading the lines, and outsourcing$---$using the attached template and submit the completed spreadsheets. It should be straightforward to see that in each year, cashflow $=$ sales volume $*($selling price $-$ unit production cost$)-$ fixed costs.

Please only use explicit information provided in the case. 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. If you feel uncertain about how to interpret assumptions, you may state your interpretations clearly in the spreadsheet. As long as these interpretations are reasonable and clearly stated, you will receive due credit even though your numbers may not match the solution.

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 $$90$ worth of the material actually enters the product and $$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\mathrm{.}5.$ The labor costs do not need to be adjusted.

For the outsourcing option, the case states $"$it would need six months to ramp up production", therefore you should assume that while the tooling cost is incurred in year $0,$ the outsourcing operation takes effect starting year $1.$ You may also make the assumption that the outsourcing option adopts marketing's new packaging design and thus enjoys the $20\%$ increase in sales.

The tooling costs in the outsourcing option are one$-$time costs of providing assets specific to your needs $($e$.$g$.,$ molds$)$ to the contract manufacturer. They are provided by the client and often retained ownership by the client because the manufacturer has no use of and is not allowed to use them for other clients.