ACN202 case study

TENALPINA TOOLS: THE ENTERPRENEUR’S DILEMMA

SOLUTION
-AMMIR
1.Giulia is clearly intrigued by the options that have just opened for her. If she
were to accept the customer contract offer and take over the forge, how would
her business model change?

If she were to accept the customer offer and take over the forge her revenue would increase as
she would be selling 4000units of pitons per month now at a rate of $10.50 per unit. Where
before she used to sell only 1000units for $11.00per unit.

Her business model for cost would change drastically as she now has to operate the Forge.

Previous business model costs (outsourcing)

Forge Charge ($9000/1000 units) = $9

Titanium alloy bars per unit piton = $1.45
Total cost = (9+1.45) = $10.45

Owning the Forge

Labor cost (6 x $57,500) = $345,000

Building (except electricity) = $33,000
Depreciation = $14,355
Electricity (0.52x48000units) = $25,157.23

Total Fixed cost per year = $417,512.23

2. perform a simple breakeven analysis for each for the two basic business model
configurations- the current outsourcing arrangement and operating the forge .

Break-even point= Fixed Cost/ (sales per unit cost- variable cost per unit)

Variable cost Per Unit of Pitons:

Titanium alloy bars per unit piton = $1.45

Supplies ($110/1000units) = $0.11
Electricity (1000units/$1908) = $0.52
Total variable cost per Unit = $2.08

So, break-even point for

 Owning the forge = ($417,512.23 / ($10.50-$2.08)) = 49,585.78 units per year
 Outsourcing = 1 units per year
3. Is the analysis above informative? How can Guilia use or extend the breakeven
calculation to add more information to her understanding of the situation.

Yes, the analysis above is informative as one can clearly see the Fixed cost of running the forge.
The information above also shows the variable cost of product per unit and clearly shows the
break-even point of both owning the forge and outsourcing.

4. What other contextual information given in the case is relevant to Guilia’s

thinking about her next move? Why? What other data should she be seeking?

As stated in the case that Guilia was fascinated about the stories she heard, how the soldiers
would climb up the sheer rock walls for lookouts and gun emplacement, from an early age Guilia
had an interest of climbing rock walls, her passion for rock climbing played a major role as she
went along with her next move. Guilia had always wanted a business of her own like her parents
so when she got the opportunity to own a business it was like a dream coming true. There are a
lot of information that Gulia could be concentrating on like the fact that she was Mr.Stanley
Kowalcheck’s only customer for the last three months. Guilia should really take the fact that
most of the previous customers had begun to shift contract production to china, this proves
that the opportunity for local orders had gone down.

5. Based on your analyses, what counsel would you give Guilia?

Bases on the analysis, I would tell her not to go forward with owning the business. Even
though she is passionate about the whole rock climbing thing the risk of her business not
going well is pretty high. As most of the contracts are now done out of the county and she
only produces one kind of products and on top of that for one individual organization. The
risk of her business not performing well is high so my suggestion to her is that she should
either look for another business to invest in or introduce a few more varieties of mountain
climbing products and not only stick with only producing pitons