Microlite S.A. the Pan-Orient Decision

9/29/15

9/29/15

Microlite s.a.: the Pan-orient decision

MGT 6353

Microlite s.a.: the Pan-orient decision

MGT 6353

Group Case Analysis

Group Case Analysis

1. Financial analysis of Pinto’s alternatives for increasing capacity in the Jaboatao plant

Now that management has decided to close the Guarulhos plant, Pinto is faced with two options: replacing outdated equipment in Jaboatao with machines salvaged from Guarulhos or purchasing the Pan-Orient automated assembly line. Both options will increase the capacity of the Jaboatao plant by at least 1/8 to make up for the capacity lost by closing Guarulhos plant, as shown in the throughput analysis in Exhibit 7, thus making either choice a viable option.

Repurposing the Guarulhos machinery requires less of an investment and process change for the Jaboatao plant, because existing company resources would be used and the current assembly process would not change. As shown in Exhibit 2, transferring the 18 machines to Jaboatao would require delivery, transportation, and installation costs of $75,000. However, selling the comparable Jaboatao equipment would create revenue of $105,000, thus allowing for a profit of $30,000 by moving the machinery. Similarly, by installing the Pan-Orient line Microlite would be able to sell both the Jaboatao and the Guarulhos equipment in final assembly to offset the initial investment of $2 million. Although they would likely be able to sell additional machines for the Install Paper Cup and Install Paper Top operations, that revenue potential is unknown and not accounted for in the calculation. This results in an investment cost of $1,745,000.

While the Pan-Orient line requires a larger investment, it can create cost savings in terms of quality and labor. The more reliable Guarulhos equipment will improve quality in Jaboatao by reducing the failure rate to 0.1125%. However, the Pan-Orient line will allow for even greater quality cost savings, due...