Fine Print

Introduction:

In this memorandum, I evaluate the three alternatives Mr. Johnson's company FinePrint Company has encountered. FinePrint is a high-quality brochure printing company that operates at full capacity. Mr. Johnson is presented with three choices on how to allocate FinePrint Company's current production under some special cases. The special cases include a special order from his friend Abbie Jenkins, and outsourcing opportunity from a small local printing shop ran by Ernest Bradley, and outsourcing Abbie's order to Ernest. My assessment of Mr. Johnson alternatives includes calculated relevant costs and benefit for each choice and an evaluation of the relevant constraint for the company. Finally, I provide a recommendation for Mr. Johnson on which alternative to choose.

Special Order:

FinePrint currently runs at full capacity that is 150,000 brochures. If he chooses to take the special order from Abbie, he would have to print 25,000 brochures for her and 125,000 for the company. After computing the relevant costs and benefit, I recommend that Mr. Johnson reject the special order. As shown in Exhibit 2, I used the contribution margin per unit (100 brochures in this case), the difference between the sales price and the variable cost, to evaluate the two alternatives, in order to help Mr. Johnson make a decision. FinePrint Company has an average sales price per 100 brochures of $17 and total variable cost per 100 brochures of $7. This results in a contribution margin per 100 brochures of $10 (Exhibit 2). Over the phone call Abbie informed Mr. Johnson that she could not go any higher than $10 per 100 brochures so if he decides to accept the special order, sales price per 100 brochures for the special order will fall to $10. Since Abbie reached out to Mr. Johnson, he would not need to pay his sales representative. This changes the variable cost to $6 resulting in a contribution margin per 100 brochures of $4 (Exhibit 2). This contribution margin is...