Sine John does not have a “Rule of Thumb” when to accept orders, we were asked to examine this situation more closely and come up with a solution. He would like to know what he should do with both these offers. The Special Order Abbey Jenkins is asking for a favor on this onetime, special order of 25,000 brochure at $10 per 100. After speaking with Abbey, John is told that Abbey does not have any more orders In the future for him.
After doing some calculations we come too conclusion that this order should not be accepted at this time because we Blueprint Is currently running at almost a full capacity.If this order Is accepted then Blueprint will have to not print some of his current orders that are paying him SSL 7/batch In order to take in Babies order of $10/batch. At full capacity, Fingerprints profit per month is $3000. If he accepts while at full capacity, he would be losing $1 ,500. However, if his capacity is below 83 percent he should accept the offer, that way he will still make profit.
The Outsourcing Opportunity The second opportunity was presented to John by Ernest Broadly and owner of Similarity Shop.Ernest has currently lost one of his largest customer. He came to John saying that he is willing to print some of John’s orders for as low as $8/batch of 100 brochures. Even though that offer sounds good when looking at the numbers is might not be as profitable. The variable cost for John Is $6 without commissions and $7 with commission so outsourcing would not be cost effective for him unless he was at capacity. So unless John Is printing more than 150,000 brochures per month he should not outsource. Fingerprint will actually lose money.The following example is based on Printing 1,000 batches (100,000 Brochures) and outsourcing batches (50,000 Brochures).
As you can see outsourcing current work that as a result company printing less than full capacity which leads to a loss. Because Fingerprint is currently running at full capacity it cannot print Babies special order; however we can outsource this onetime project to Similarity. Earnest is willing to accept $8 per 100 brochures. If Fingerprint decides to outsource, this will net him an extra $500 profit ($xx 250).
Rule Of Thumb For future special order projects, John should know that the breakable point for sales commission; it is $6 per 100 without sales commission. Therefore, if he is running at 80% or less capacity he can accept anything over $6 without sales commission and $7 with sales commission. And if he is at capacity he can outsource items for extra income as long as they are profitable. Conclusion Currently Fingerprint cannot accept Babies order to print ourselves because that would result in a loss.Because it means that John would have to drop a customer that is paying $17/batch and accept Babies order of $10/batch that would result in a loss of $1 ,500. Another aspect is to outsource our work, which would mean to give up our current clients, which would mean that we are not operating at a full capacity.
This too would result in a loss. After examining all of this information we conclude that it is best for Fingerprint Company to only accept Abbey Jenkins order to outsource this onetime project to Similarity.