Case Study - The Zoo Crew

Mary Milovic
MBA6140
Colleen Rushford
11/9/2014
THE ZOO CREW - MANAGEMENT DECISIONS

Blue: The Company has an opportunity to open a second facility south of Springfield, IL. It
The company believes that it can capture between 7 and 10% of the market. Variable costs
Included in the costs are amounts required to meet the necessity to hire some new people

Rev (7% of $5M)

Rev (10% of $5M)

Floor
Ceiling
$
350,000.00
$
500,000.00

VC

87,500.00

125,000.00

FC

300,000.00

300,000.00

Net Op Income

(37,500.00) $

(425,000.00)

No - The Zoo Crew should NOT undertake this expansion. They need to lower their FC

Green: The insertion, sorting and mailing machine in the Macomb shop is failing. A result i
Furthermore, the balky machine adds $25,000 in annual labor to the payroll costs. The mo
The renovation will make it serviceable for another 3 years. Alternately, a used machine t
Its price is $125,000 and its expected useful life is 2 years before a renovation will be requ

Insertion, Sorting & Mailing Machine

Current
Repair Existing
Net Acquisition Cost
$
300,000.00 $
175,000.00
Op Costs for 3 years
$
75,000.00 $
175,000.00
Current Salvage Value
$
50,000.00 $
$

25,000.00

350,000.00

The Zoo Crew should do nothing. It costs $100k more to repair the existing one than b
value will be $50k when it finally needs to be scrapped. That will offset the cost of the

Orange: THE ZOO CREW presently produces 7,000,000 pieces per year in its 10,000,000 pi
They have offered to subcontract THE ZOO CREW full service program for $1.85 per mailin
If THE ZOO CREW outsources their production to the mailing company, they will be able to
What impact would the outsourcing proposition have on THE ZOO CREWs income? Should

CM = Rev - VC

$
$
$

0.70
7,000,000.00
4,900,000.00

$
$
$

0.65
7,000,000.00
4,550,000.00

FC

4,400,000.00

4,000,000.00

Net Op Inc.

500,000.00

550,000.00

This outsourcing proposition has a strong impact on The Zoo Crew's Net Op Income. It
If The Zoo Crew is expecting to keep the volume consistent, then yes, they should take
has additional capacity, it should be able to help The Zoo Crew grow their business. H

Gray: THE ZOO CREW is presently producing at 70% of its 10,000,000 mailing piece capacit
THE ZOO CREW charges $2.50 per mailing piece. The variable cost of full program service
Should THE ZOO CREW accept the customers offer of $1.95 per unit? What will program a

CM = Rev - VC

$
$
$

0.70
2,000,000.00
1,400,000.00

$
$
$

0.55
2,000,000.00
1,100,000.00

FC (adj for qty)

1,257,142.86

1,142,857.14

Net Op Inc.

142,857.14 $

(42,857.14)

The Zoo Crew should NOT accept this offer. By outsourcing for $1.95, they don't make
Some factors to consider are fixed costs. Do they really change equally as the VC chan
it should help with profitability.

ENT DECISIONS

outh of Springfield, IL. It is anticipated that there is a $5.0M market for company services.
he market. Variable costs are anticipated to be 25% of the selling price and fixed costs are anticipa
to hire some new people, add a facility, and manage the business from over 90 miles away. Should

They need to lower their FC prior to expanding. Either that or they need to catpture more of the market.

shop is failing. A result is that about 10% of the mailers must be scrapped. The value of the scrap i
he payroll costs. The molding machine originally cost $300,000 and is fully depreciated. It can be c
nately, a used machine that is operating properly has become available.
a renovation will be required. Should THE ZOO CREW repair the existing machine, purchase the use

Purchase New One

Difference
$
125,000.00 $
50,000.00
$
125,000.00 $
50,000.00
$
$
$

250,000.00 $

100,000.00

pair the existing one than buying a new one. However, it will only cost $75k for 3 years and the salvage
at will offset the cost of the Op Costs.

year in its 10,000,000 piece facility. THE ZOO CREW has been approached by a mailing company wi
ram for $1.85 per mailing piece. At present THE ZOO CREW charges $2.50 per piece for the full ser
pany, they will be able to reduce their current $4,400,000 fixed costs by $400,000.
CREWs income? Should THE ZOO CREW accept the outsourcing offer? What qualitative factors sho

o Crew's Net Op Income. It has increased it $500k at their current production level.
, then yes, they should take it. Because this outsourced mailing company
rew grow their business. However, it will not be worth it if the fixed costs do not decrease.

000 mailing piece capacity. For a full program of electronic fulfillment, mail processing and mailing
t of full program services is $1.80. A company has called and offered to purchase 2,000,000 units o
nit? What will program acceptance mean in profitability terms? What qualitative factors should be c

for $1.95, they don't make any money. Their Net Op Income is negative.
ange equally as the VC change. Also, if the company is willing to lessen the price by 10 cents,

mpany services.
d fixed costs are anticipated to be about $300,000.
r 90 miles away. Should THE ZOO CREW undertake this expansion?

more of the market.

The value of the scrap is about $50,000 annually.

depreciated. It can be completely renovated for $175,000.

achine, purchase the used one, or do nothing?

ears and the salvage

by a mailing company with 12,000,000 units of excess capacity.

per piece for the full service plan. Its variable costs are $1.80 per unit.

t qualitative factors should THE ZOO CREW consider?

processing and mailing management

rchase 2,000,000 units of service.
ative factors should be considered?

10 cents,