Barvo Carolina Case Study 1 Essay

1103 Words 5 Pages
Case Study: Forster’s Market
Carolina Barvo Vilaro,
Professor Eric Bateh
Production Operations and Logistics Management
MAN3505
Florida State College at Jacksonville

ABSTRACT

This paper has the purpose to analyze the case study of Forester’s Market. Through this paper I will answer the questions presented in the case study.

INTRODUCTION
Forster's Market is owned by Robbie Forster. A company specialized in food items, including roasted coffee. He buys roasted coffee from a supplier for \$3 per pound and sells 14,400 pounds to his customer every year for \$ 7 per pound.
Robbie is in the process to earn more money with his company. One option he is thinking about is to buy a roaster for \$ 35,000, which will
If he us planning on expanding and reaching out to new segment market, it is more likely that the demand per pound will increase in this case will be better just having he own equipment as mentioned previously.
3. Calculate the expected value for the two capacity options. Keep in mind that for the roaster option, any demand above 14,400 pounds will generate revenues of only \$ 2.90 a pound. Update the decision tree to show your results.
The formula to calculate the expected value is as follow: Expected value=(R-VC)*X-FC
Expected value for option 1 (keep buying from the supplier) EV=14,400 x (\$7-\$3) EV= \$57,600
Expected value for option 2 (buying a roaster equipment)
EV low demand= [14,400 x (\$7-\$1.60) + 3,600 x (\$2.9-\$1.60)] - \$35,000
EV= \$47,400
EV medium demand= [14,400 x (\$7-\$1.60) + 10,600 x (\$2.9-\$1.60)] - \$35,000
EV= \$56,540
EV high demand= [14,400 x (\$7-\$1.60) + 20,600 x (\$2.9-\$1.60)] - \$35,000
EV= \$69,540
Total EV for option 2 = (33.3% x 47,400) + (33.3 % x 56,540) + (33.3% x 69,540)
Total EV option 2= \$ 57,840

4. What is the worst possible financial outcome for Forster’s? The best possible financial outcome? What other factors-core competencies, strategic flexibility, and so on- should Robbie consider when making this decision?
If Forster’s Market decides to buy a roaster equipment and start processing their own material, the worst possible financial outcome is to incur in a low demand margin. This will be