Swisher Mower and Machine Company (Smc)

RECOMMENDATION Swisher lawn mower and Machine confederacy should reject the offer to produce the Private-Label brand. RATIONALE Standard Riding Mower contribution per unit would liquidate from $97 to $33. 98, which is $63. 02 per mower. (Appendix 4) Contribution Margin would drop from 14. 92% to 5. 5%, which is 9. 42%. (Appendix 4) Swisher Mower would only simoleons $62,819 from producing the 8,200 units in the Private-Label in the first full year of production. (Appendix 5) oProfit per mower is only $7. 66 per unit. Cannibalization of SMC current mower is ($29,000) loss from the private-label brand. Plus, the loss of supererogatory smaller commutative dealer in the future since there will be an convergency in trade areas. (Appendix 3) SMC will incur additional labor court on 2,450 units because the factory is already at full capacity. oThis results in additional $63,700 overtime labor be, which is $7. 77 per unit. (Appendix 1) With the increase in labor, materials, overhea d, and property tax, the additional variable cost is $30. 52 per unit. Appendix 1) oThis brings the total variable cost to $583. 52. (Appendix 4) SMC will only be making $7. 66 per mower, and the participation wants them to fo on a lower floor $22 per hour for any maintenance on a mower under warranty. Therefore SMC would have to sell 3 additional mowers to widen each hour work done to a mower under warranty. The accounts receivable and inventory carrying cost for the private-label brand is $175,789. 97, $59,386. 73 and $116,412. 24 respectively. (Appendix 2) The render of company would be altered since SMC would double their sales with one private-label product.Since the company has a reputation of being small and personal introducing the private-label could be prejudicious to their current business. Remain status quo and on average increase profit by 10% and continue to widen the breathe of the product lines, Trim-Max. APPENDICES addendum 1 Incremental terms for Private Lab el Direct jade Cost $650 x 4% = $26 additional Labor for 2,450 units = 2,450 x $26 = $63,700 / 8,200 units = $7. 77 per Unit Direct Materials Cost $650 x 1% = $6. 50 Additional Overhead $650 x 1% = $6. 50 Additional Property Tax $650 x 1. % = $9. 75 Total Additional Var. Cost = $7. 77 + $6. 50 + $6. 50 + $9. 75 = $30. 52 APPENDIX 2 Carrying Cost for Private Label Accounts Receivable A/R overthrow Rate = 365 / 45 = 8. 1 8,200 units x $617. 50 = $5,063,500 / 8. 1 = 625,123. 46 x 9. 5% = $59,386. 73 Inventory Inv. Turnover Rate = 5. 8 Average Inv. = 2,100 units Unit Cost = $583. 52 2,100 units x $583. 52 = $1,225,392 x 9. 5% = $116,412. 24 Total Carrying Cost = A/R + Inv. = $175,798. 97 APPENDIX 3 Cannibalization SMC mower = $650 $553 = $97 Contribution Per Unit Units illogical = 300 $97 x 300 = ($29,100)