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 6 pages in length and its case teaching package is 8 pages.

Abstract

Should the motor vessel Tashtego be used as a freight tender between Dar-es-Salaam and Zanzibar in East Afrcia or as a tapioca ship between Balik Papan and Singapore in the East Indies? Or, is this too narrow a view of the management issue involved?

Upon first review, this case appears to be a complicated, but straightforward, exercise in financial analysis for a "capacity allocation" decision—where should the "productive capacity" represented by the ship Tashtego be deployed? This seems to be just an exotic example of the familiar machine allocation problem.

As we shall demonstrate here, the case is really much richer than that. It also deals with capacity expansion, "hub and spoke" distribution concepts, and route profitability evaluation.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We use the case early (day 4 or 5) in the required management accounting course at Tuck. The case does not raise any concepts that are new to the students at that point. The real power of the case is that it clearly shows how a carefully conceived cost analysis framework can lead, step by step, to ever deeper levels of insight about the management issues involved.

The issue in this case is very exotic—should the motor vessel Tashtego be used on the tapioca run between Singaporte and Balik Papan in East Asia or as a freight tender between Zanzibar and Dar-es-Salaam in East Africa? This decision hinges on a cost analysis as to which option is more profitable. One issue we will discuss in class is what constitutes a "variable" cost when some costs vary per ton, some per day, some per mile, and some per stop. Other issues we will discuss include the importance of defining the alternatives precisely, the concept of profit contribution per unit of capacity, and the role of cost analysis in helping management to ask the right questions.

Study Questions

In order to help the student work through this difficult but also valuable case, the following specific questions should be answered in order. These questions help you develop, piece by piece, an overall analysis of the decision.

1. How much profit contribution can be earned by carrying 1 ton of tapioca from Balik Papan to Singapore, dock to dock, considering revenue and cargo costs? How much can be earned by carrying 1 ton of general merchandise from Singapore to Balik Papan?
2. Given the contribution/ton figures arrived at in question 1, what is the total contribution which can be earned on one round trip by Tashtego between Singapore and Balik Papan and return? By one of the large vessels?
3. Independent of the amount and type of cargo carried, what are the incremental trip costs of sending Tashtego on a round trip between Singapore and Balik Papan? One of the large vessels?
4. Considering revenue, trip costs, and cargo costs, what is the total contribution per round trip for each of the vessel types? What is the total contribution per year for each of the vessel types?
5. What is the overall profit impact if Tashtego is moved and large vessels are used on the tapioca run? (Hint: Pull your answer to question 4 together with the information in Exhibits 3 and 4 of the case.)
6. What actions should Mr. Georgopoulis take? Why? (Hints: 1—What is Macedonian's average profit contribution per shipping day for 1963? 2—Was buying Tashtego to use as a tapioca ship a good investment decision, based on information available at the time?)

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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