Wilson case
Francesco Giocoli
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Index
1
Introduction
1.1 Rigbee's oer . . . . . . . . . . . . . . . . . . . . . . . .
1.2 Full production capacity . . . . . . . . . . . . . . . . . .
1.3 Data Analysis . . . . . . . . . . . . . . . . . . . . . . . .
1.3.1 Amortization . . . . . . . . . . . . . . . . . . . . .
1.3.2 Investment . . . . . . . . . . . . . . . . . . . . . .
1.3.3 Financial and economic view . . . . . . . . . . . .
1.4 Customers . . . . . . . . . . . . . . . . . . . . . . . . . .
1.5 Variable and xed costs . . . . . . . . . . . . . . . . . . .
1.6 Variable costs table . . . . . . . . . . . . . . . . . . . . .
1.7 Fixed costs table . . . . . . . . . . . . . . . . . . . . . . .
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1. Introduction
1
Introduction
Wilson is a company that produces electronic components. Magnus,
another company in good business with Wilson, reaches an agreement
to buy a line of products, K-50. They are willing to buy this product up
to 10000 units. Although Wilson's production capacity is much bigger
than 10000. Since Magnus is one of the best customers of Wilson, they
agree on a lower price of $15.50 per unit.
1.1 Rigbee's oer
Rigbee, a third company, proposes to buy the same product in a larger
quantity but at a lower price. They want to buy 15000 units at $11.50
per unit. They like the component but they can't aord to buy for a
higher price.
1.2 Full production capacity
If K-50 production reached full capacity, which is estimated to be 50000
units, Wilson would be able to sell them all for $10 per unit. The boardroom now needs to decide which strategy of the three to choose.
1.3 Data Analysis
1.3.1
Amortization
Amortization, also called depreciation, is the process through which you
divide a cost throughout the years and get the amount of money per year
you are paying.
1.3.2
Investment
From a nancial point of view, the rst year will be tough. In case they
want to sell only to Magnus, Wilson would have to pay $155100 to start
the production.
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1.4
1.3.3
Customers
Financial and economic view
Financial side depends on the outow and inow of cash in a year. The
economic side is related to the protability of a business taking into
account only the resources that you are using for that year, for that
business. So on the economic side there will be an amortization of costs to
represent what you are spending throughout the years, while the nancial
side shows the actual per year outow of cash.
1.4 Customers
In the business to business market, you do not look at all the customers
as the same. You have to treat them dierently based on the relationship
you have with them.
1.5 Variable and xed costs
Variable costs are production costs that vary based on the quantity produced, while xed costs are the same whether you produce 1 or 1 million
units of the same product. Obviously, the more units you produce, the
less the xed costs impact the production of a unit.
1.6 Variable costs table
These shown in the table are the variable costs in all of the three cases.
As predicted, the cost in dollars per unit is always lower when production
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1.7
Fixed costs table
volume increases.
1.7 Fixed costs table
The green table shows Wilson allocation of xed costs, while the aqua
table shows a more realistic allocation of xed costs. In fact, Wilson
considers general production costs as the same for every unit, while this
cost could be the one needed to activate a machine. So it would mean
it would have to be paid only once to start the production of a specic
amount of units and not paid to produce only one unit. Same goes for
the general accounting costs.
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