Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 8 pages in length and its case teaching package is 8 pages.

Abstract

This case deals with cost analysis for pricing new business in a small injection molding job shop in "the Maritimes" in 1986, a good business year.

Linkages to Textbooks or Journal Articles/Fit Within a Course

This is an excellent short case that blends basic cost analysis themes with strategic management themes. The ostensible topic is cost analysis for bidding in a small shop. But, the case also deals with activity-based costing and the blending of business analysis, strategic analysis, and cost analysis. It is a great case to see the interactions among these various themes—not much can be done here with any of them, but they all are clearly relevant, once the context is clarified.

We often use this case as the final class in the management accounting course. It raises many of the issues from the course—contribution vs. full cost, strategy and cost analysis, business analysis as a context for cost analysis, and ABC. It thus is an excellent review case. It is also fun to teach because there are many levels of analysis, all interacting together, and many different "solutions" are plausible. The case is likely to generate controversy in class, which reinforces the basic ideas that cost analysis is a journey, not a destination, and that the "goal" is better questions, not definitive answers.

Study Questions

1. Based on your interpretation of Exhibit 3 in the case, what is your estimate of the change "PFMOH" cost if the factory were to run one extra batch of 150,000 milk crates?
2. What is your estimate of the incremental cost per unit for one batch of 150,000 milk crates?
3. What does Exhibit 2 of the case suggest would be a "normal" price for milk crates for an "average" job shop? What does this suggest about the $3.00 price which seems to prevail at the time of the case?
4. What is the "strategically relevant" cost per unit for milk crates? (For purposes of deciding whether or not the $3.00 "market price" is profitable, on an ongoing basis.)
5. What is your advice to Mr. Smith regarding the milk crate opportunity? Be specific and show the calculations supporting your advice.
6. What overall strategic advice do you have for Mr. Smith? Why isn’t the business doing better, given the new "specialties strategy" and good business conditions? Support your answer with relevant cost analysis.

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

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