CASE 26-3:

PRECISION WORLDWIDE, INC.

Group 3:

Giselle Fabian
Trish Mercado
Anna Tomas
 OUTLINE

• Background

• Statement of the Problem

• Areas of consideration and Answer - Computation

• Recommendation
 BACKGROUND

Precision Worldwide Inc. (PWI) is a manufacturer of industrial

machines and equipment for sale in numerous countries.
Repair and replacement parts account for a substantial part of
the company’s business.

Steel Ring is one of the replacement parts manufactured by

PWI that can be used on some competitor’s machines.
BACKGROUND

Steel Ring has an average

normal life of about 2
months.

A machine requires between

2 to 6 rings to operate.

Individual rings are replaced

as they wore out.
 BACKGROUND

Over the years, competition has increased. The French firm

Henri Poulenc entered the market with a superior plastic ring
that would substitute the steel ring. 10% of PWI market will be
affected.

Plastic ring is less costly to manufacture and has a longer life.

 BACKGROUND

Plastic ring has the same price as steel ring - $1,350

PWI still has a large quantity inventories of steel rings that they
have purchased that cannot be sold even for scrap. Total book
value is $390,000
 BACKGROUND

People in PWI
Hans Thorborg

- General Manager of Precision

Worldwide, Inc.

Gerhard Henk
- Sales Manager, asking when this
product will be available for him to sell
that his competitor already has on the
market, particular in France
 BACKGROUND

Bodo Eisenbach
- Development Engineer
- Estimated that the plastic rings could be
produced by mid-September.
- tools and equipment could be obtained
for about $7,500

Patrick Corrigan
- parent company spokesman
- agreed that the company should
proceed with plans for its production
- expect Thorborg to exhaust all steel
supplies.
 BACKGROUND

Alternatives per PWI key persons

1) Continue sales of steel rings until September and discontinue
the sales once plastic rings are available.
-Henk

2) Manufacture new rings as soon as old models are exhausted,

plastic rings would only be sold in those areas where it was
offered by competitors
- Thorborg
 STATEMENT OF THE PROBLEM

What action should Hans Thorborg

take? Why?
ANALYSIS - HENK

=131 x 40% =393 x 40%

 ANALYSIS

=196.50 x 30%

=157.20 x 30%

•Material considered as sunk cost

• Considering the employment labor at about 70% of regular wages
(cost x 70%)
ANALYSIS
ANALYSIS

=49,600 x 13.50 =12,399 x 13.50

=106.11 x 345

=12,399 x 1.3555
 RECOMMENDATION

 Thorborg should still continue to sell steel rings until

plastics rings are ready for the market.

 Sell steel rings at a reduced cost due to less longevity than

plastic ring.

 Manufacture and sell steel rings until all steel stock is

exhausted. Then sell plastic rings only.

 Should instruct Eisenbach, to begin the process to enable

the company to manufacture the plastic rings.
 RECOMMENDATION

 Customers must be notified once plastic ring becomes

available in the market.

 During slack manufacturing period, Hans to instruct the

factory to concentrate on manufacturing steel rings at the
reduced labor rate to incur a surplus of steel rings and during
the peak season to concentrate on plastic rings.

 Sales of steel rings must be monitored and in time sales are

faltering, production must stop and should eventually sell
plastic rings only.
END OF REPORT

Thank you!