What is the quantitative analysis in this situation

Case 11-2 McMichael Inc. Art Hynin, packaging buyer for McMichael Inc. (MB), was own molding shop. It depended heavily on automotive working as an import substitution project involving a local contracts, a situation Bert Wood wished to correct by minority supplier. He was concerned, however, that his of acquiring more nonautomotive business. In conjunction forts would be fruitless because his original proposal had with MI's engineers, Bert Wood had worked out a mold been flatly rejected by the plant manager as too expensive design for the cream dispenser and included several og McMichael Inc. a medium-sized company, had over the gestions for minor improvements. The cost of the mold years specialized in prescription in care products a mar was $56.000, an investment Bert Wood was in no posi ket niche in which it had developed an excellent reputation tion to make and that I would have to absorb up front About three years ago, after extensive testing, MI had intro Bert Wood quoted a unit price of 50.27 based on po duced a new facial cream in a special package that allowed chase quantities of 30,000 units at a time and an annual for precise measurement of the quantity dispersed. The volume estimated at 300.000 units. Bert Wood had sub container, manufactured by a French firm for a different ap mitted a cost heakdown of this quote as follow plication was fairly expensive at an FOB MI's factory cost of 50 36. What cocomed An Flynn even more, however, 166 were the quality and delivery problems encountered.Com Labor 36 munications with the manufacturer were difficult and Art Overhead 86 had the impression the manufacturer did not seem to care 276 much about MI's business, which as Aut knew, was only a small peoportion of their total volume produced With the cooperation of Mi's marketing engineer ing, production and quality control personnel, Art had found a local minority supplier who appeared capable of meeting MI's requirements. This custom molding firm, OSA Inc. was owned by Bert Wood, a bright engineet who had purchased the firm several years earlier when the previous owner wished to retire. OSA Inc. hadits When Antwed this quote along with the request for own tool and die manufacturing operation as well as its 556.0 mold investment up from the plant manager and 320 Purchasing and Supply Management treasurer both turned it down, arguing that the 24-month pay back on the mold was far too long and that the company had better investment opportunities with a 12-month payback Art was disappointed because he had hoped this proje ect would assist in helping him meet his saving target for the year. When he talked the idea over with his man aper, Louise Moffat, she suggested be give it another try She said. am sure that if you can get the mold pay. hack down to 15 month, you will get a warmer reception There are not that many deals around this company that pay for themselves in one year. She also suggested that Art talk to marketing to see if some other products could use the same packaging, and to the production scheduling group to check if different production quantities could be ordered When Art talked to the marketing people, he found out that the package was ideal for another product to be introduced shortly and with an annual demand estimated at 100.000 units. Marketing had been uncay about using the French package because of the difficulties enco tered with it and assured Art that if he could get a reliable domestic source, this option would be highly attractive. The scheduling grup, for a number of years. Had seda modified MRP system. When An discussed the new pack age idea with them, they told him that if the new product and the older ce were to be packaged in the same package. a total package requirement of about 40,000 units would make sense and that the master production schedule could casily be adjusted to run the two products in conjunction Art also discussed the situation with the resin supplier who indicated that his quote to Ben Woodhad been based on the lot size of 30,000 packages, but that a 40.000 unit lot would fall into a new price bracket 5 percent lower than the originally quoted price Art wondered just what effect all of this new informa tine would have on his onginal proposal He knew that Bert Wood had been adamant about his 50.27 quote. Bert Woodhad said know I am classified as a minority sup plier. But I don't want to hide behind that fact. I want no special faves from any of my customers. Nor am I in a position to make special gifts to anyone else. I have had to borrow at what I consider to be ridiculously high interest rates to buy this company. Now I have to make it pay off My $0.27 price is as low as I can go as far as I can see