MOG 1001 Profitability Report Cottage Living Case Study

Description

1 attachmentsSlide 1 of 1attachment_1attachment_1.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }

Unformatted Attachment Preview

MOG1001 – Case Study [F21]
Case Study – Cottage Living
The Situation:
James White, an entrepreneur from Bracebridge,
Ontario owns a company called Cottage Living that
manufactures outdoor lounge chairs commonly
referred to as ‘Muskoka chairs’. These chairs are made
from a very high quality composite wood and are
considered a premium product in the outdoor
furniture market.
Cottage Living ships 70% of their manufactured chairs
to various outdoor furniture retailers across Canada
and the northern parts of the United States. They also operate a seasonal ‘flagship’ store in Bracebridge where
they sell 30% of their manufactured chairs during the summer.
In 2021, the retail price in their store has been set at $430 CAD. Cottage Living has agreements with all of the
other outdoor furniture retailers that they supply chairs to where they must match the Bracebridge retail store
price. In exchange, Cottage Living supplies chairs to these retailers at $150 below the current retail price.
Over the past two years there has been substantial growth in the demand for premium outdoor living products.
There has also been a steady increase in the number of suppliers of premium ‘Muskoka Chairs’ throughout
Ontario and North America who sell products that are very similar. The industry could best be described as
‘monopolistic’ where as there is slight product differentiation, many buyers and sellers, and no one company
has much control or power in the overall market.
In an attempt to increase overall profitability, Mr. White is considering expanding the manufacturing capacity of
Cottage Living. To make sure that he would be able to sell the additional units at the market price he is also
considering changing the way that he compensates his sales team.
Your Task:
Mr. White previously hired a group of consultants who had started collecting and analyzing some data.
However, due to a personal disagreement he has decided to go in another direction. Based on your reputation
as an expert in managerial economics, he has hired you and your team to take over the project.
The previous data is available to you but you need to finish the analysis and determine a business strategy that
can increase Cottage Living’s profitability while also managing risk. He would like you to present your findings
and recommendations in a brief report.
The report needs to include the following deliverables:
1. A market analysis and prediction for the overall market price of premium composite Muskoka
chairs
2. A net present value analysis of the proposed manufacturing expansion and a final
recommendation on expansion
3. A proposal for a new compensation plan for his sales team
Market Supply and Demand:
For 2021, Cottage Living is expecting final sales to be 50,000 units (100% of the units manufactured). The
previous consultants had collected and studied market data for Cottage Living’s sales region and approximated
the total market demand and supply schedules for high quality composite Muskoka chairs in 2021:
Mr. White feels this analysis is reasonable given that all competitors also have a selling price very close to $430
and since the average variable production costs for Cottage Living chairs is $200 per chair in the current
Bracebridge facility it would make sense that market supply would be very low at a retail price of $280.
The previous consultants determined that for the next 3 years (2022, 2023, and 2024). There were 3 equally
likely scenarios for the market supply and demand:
Worst Case: The increased demand for ‘outdoor living’ products in 2019 and 2020 could have been
largely due to the unique conditions created by the pandemic. If this is the case they expect that the
2022 demand for composite Muskoka chairs will fall by 600,000 units at every price level and remain at
those levels until 2024.
Moderate Case: The increased demand for ‘outdoor living’ products in 2019 and 2020 could have been
part of a longer term trend for consumers and was possibly not affected by the pandemic. If this is the
case they expect that 2022 demand will stay roughly at 2021 levels until 2024.
Best Case: The increased demand for ‘outdoor living’ products in 2019 and 2020 could have been part of
a longer term trend for consumers and may have been negatively affected by the pandemic. If this is the
case they expect that demand will increase by 500,000 units at every price level and remain at those
levels until 2024. In this scenario it would be likely that supply was also negatively affected by the
pandemic and therefore market supply would also quickly increase in 2022 by 200,000 units at every
price level and remain at these levels until 2024.
Given the competitive nature of the industry Cottage Living has very limited price control and they will set their
prices at the market rate for 2022-24. Mr. White needs you to determine the market price for premium,
composite Muskoka Chairs for 2022-24.
Capital Investments Production Process and Costs:
Mr. White is considering temporarily increasing his manufacturing capacity to a maximum of an additional
50,000 units in 2022 by opening a small secondary facility in Bracebridge. The expected life of this temporary
new facility would be 3 years (2022-24) with no expected salvage value of the facility or the equipment. For the
expansion Cottage Living would need to invest $8,000,000 by the end of 2021.
Given Cottage Living will not be selling chairs above market price he believes he should be able to sell all of the
additional units (as long as he can motivate his sales team) at the same mix of 70% to other retailers and 30% in
their Bracebridge store.
The previous consultants had provided this unfinished chart below for 5 different output options that needs to
be completed:
Output
Marginal
Total
Variable Cost Variable Cost
10,000
$3,500,000
20,000
$2,000,000
Expected
Selling Price /
Unit
Total Revenue
Total Profit
$3,500,000
30,000
$7,000,000
40,000
$9,000,000
50,000
Average
Variable Cost /
Unit
$3,500,000
Cottage Living would be financing the investment through a bank loan. The current cost to borrow for Cottage
Living is 6%. Mr. White needs you to find which of the 5 output options maximizes profit at the new facility and
then determine if the net present value of this investment is worth proceeding with the expansion.
Sales Team Compensation:
If Mr. White proceeds with the manufacturing expansion he feels he will need to alter the current compensation
package for his sales team in order to make sure Cottage Living can sell the additional units at market price. In
an attempt to retain talented salespeople he has previously offered a very competitive yearly salary of $70,000
plus benefits and 4 weeks paid vacation. This pay structure has worked well in the past to attract loyal
employees and to create a positive work environment at Cottage Living. There are currently 5 permanent
salespeople.
However, given how strong demand in 2019 and 2020 for Cottage Living products has been Mr. White feels that
his sales team has been lacking motivation. They have also been taking their vacations during high demand
months from May-August (he is not interested in dictating when people take their vacation). He is worried that if
there is an increase in Cottage Living’s inventory, the poor sales habits that his team has picked up during the
pandemic may negatively affect future sales.
He would like you to create a new compensation package plan that he can then present to his employees. He is
willing to compensate his employees slightly more on average but he would like to make sure it provides
motivation for them to each increase their average sales volume to ensure he is able to sell all of the additional
units.
He will need his employees to voluntarily agree to this so he would like you to help present the information to
them in a way that shows different scenarios and how the new package can benefit them for their hard work,
while not disrupting the positive culture that currently exists at Cottage Living.
The Report
Since Mr. White needs to make a decision quickly on the proposed expansion he needs you to submit your
report by:
Friday, November 26th at 11:59 pm
He would like you to give a detailed explanation of your quantitative analysis for each of the three deliverables
and hopes that you will consider any risk factors in your recommendations. He is also interested if there are any
additional qualitative factors he should consider for each decision and would be pleased if you included them in
your report.
If you have any questions about the report you can contact Cottage Livings VP of Operations at:
craig.oneill@cambriancollege.ca
ACADEMIC INTEGRITY
Students are reminded of section 8.07 of the Students’ Rights and Responsibilities Policy [can be found on
through your myCambrian dashboard] which states that ‘Students are expected to: Submit work that is their
own. It is the student’s obligation to know what plagiarism and other forms of cheating are and their
consequences. (See Cheating Policy)’ The Cheating Policy is also available through your myCambrian dashboard.
The relevant section to this form is summarized as part of this form:
Actions that are considered to be cheating include, but are not limited to the following:
a) copying from another student’s test paper or computer data;
b) using materials not authorized by the person giving the test;
c) collaborating with another student during a test without permission;
d) Plagiarizing, which means representing the work of others as one’s own. Plagiarism may include
word-for-word borrowing of material from another source without giving credit to that source; the
use of facts, ideas, and opinions from another source reworded to give the impression they are one’s
own; and the use of another student’s work, including computer data, as if it were one’s own;
e) falsifying, which means modifying, without authorization, an examination paper, record, or report;
f) knowingly using, buying, selling, stealing, or soliciting contents of any assessment;
g) falsifying identification or taking a test for another student or permitting another student to take a
test for oneself;
h) bribing a course professor/instructor/college designate to obtain a passing grade or better grade on
an assessment;
i) presenting data which may have been falsified or concocted in any way (e.g. in lab reports);
j) attributing a statement or a reference to an invented source;
k) submitting the same work (or a large part of the same work) for more than one course, unless
authorized to do so by the course professor/instructor of each course;
l) supplying materials or data for another student or other students knowing the material will be used
for cheating purposes;
m) any other action for the purpose of falsifying an academic evaluation;
n) using unauthorized technological aids.
The Penalties for Cheating:
First Offense
A student cheating for the first time will receive and automatic zero for the specific test or assignment.
Second Offense
A student caught cheating for the second time, whether in the same subject as for the first offense or in
a different subject, will receive an automatic F grade (0%) for the subject.
Third Offense
A student caught cheating for the third time, regardless of the subject involved, will receive an
automatic suspension from all college programs or courses for two years.1
1 The preceding passages are taken directly from the Cambrian College Cheating Policy which can be found on the
College Websites and student dashboards.
Please read and sign this statement and submit this sheet with your Individual or Group Case Study or Report.
Your submission will not be graded unless accompanied by this form fully completed.
FORM FOR A GROUP SUBMISSION:
My signature on this form is a formal confirmation that I have reviewed not only my own work, but that of my group
members as well, in its entirety.
I confirm that my work in this project adheres to the rules of proper citation and referencing as outlined in the Perdue
OWL Citation guide provided in the class information on Moodle, as well as the cheating policy outlined in the
Cambrian College Students’ Rights and Responsibilities Policy provided through myCambrian, and in this guide, by the
professor. This signed document is also an affirmation that I understand the consequences of cheating.
To the best of my knowledge, I also believe that each of my group members has also met the aforementioned
requirements. I understand that if the group assignment is submitted without the signature of each participating
group member, it will be interpreted that the missing student[s] signature is confirmation of non-participation by that
student in the required work and the grade will be assessed accordingly.
1) ____________________________________________
Student Name – printed
______________________
Student Number
____________________________________________
Signature
______________________
Date
2) ____________________________________________
Student Name – printed
______________________
Student Number
____________________________________________
Signature
______________________
Date
3)____________________________________________
Student Name – printed
______________________
Student Number
____________________________________________
Signature
______________________
Date
4)____________________________________________
Student Name – printed
______________________
Student Number
____________________________________________
Signature
______________________
Date
Case Study Information:
?
This case study is worth 15% of your final grade. See the attached rubric for the marking scheme.
?
For this case study you may work in groups of 2-4 students (or alone if you choose)
?
You have a limited time to complete the analysis and write the report. Please pay careful attention to
use of language, professional writing, proper spelling and grammar. Spelling, grammar, and sentence
structure errors will be assessed at a loss of 2% per unique error up to a maximum of 20%.
?
Assignments are subject to the Statement of Academic Integrity Form and the Group Submission Form
attached (they do not need to be signed and submitted). Only one submission per group will be
accepted.
Cottage Living Case Study – Rubric
Marks
Market Analysis
Expansion Analysis
Compensation Analysis
20

Market equilibrium found for all 3 scenarios
Correct overall market price determined for 2022-24,
calculations/analysis provided
20

Correct cost chart (MC, TC, AC, TR)
Correct optimal output
Net present value analysis
Justified recommendation on expansion
20

Clear and rationale compensation package
Details on average expected compensation per salesperson
Qualitative factors considered for cultural fit
Retail vs Wholesale margins considered

Rationale provided.
Both financial and qualitative factors discussed
Risk analysis performed
Clearly explained and appropriate recommendations based
on analysis

Professional (point-form ok)
Organized, clear, concise, labelled, explained
Proper grammar and spelling
Qualitative Analysis and overall Strategic
Recommendations
30
Quality of Analysis and Written Report
10
Total
Criteria
100

Purchase answer to see full
attachment

Explanation & Answer:
Case Study

Tags:
Cottage Living

James White

competition

User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.