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TenAlpina Tools 1: The Entrepreneur’s DilemmaManagerial AccountingACC 312
Apply cost behavior and CVP concepts to an entrepreneurial opportunity (single product).•Break-even analysis and target profitIdentify limitations and opportunities related to outsource vs production business models.Use relevant cost concepts to project the effects of alternative business decisions.TenAlpina: Entrepreneur’s DilemmaPrimary Case-Study Objectives
Giulia Ferrato, a recent MBA graduate, has developed a high-quality, lightweight titanium piton, a tool used in mountain climbing.She is currently outsourcing production of the pitons.At the present time, her sole customer has made an offer of significant guaranteed demand for a two-year period.Giulia is presented the opportunity to take over the forge operation of her contract manufacturer. Giulia is trying to decide what the impact to her business model would be under such a scenario.TenAlpina: Entrepreneur’s DilemmaBackground
If Giulia were to accept the customer’s contract offer and take over the forge, how would TenAlpina’s business model change? (Consider the entire business model but pay particular attention to revenue stream and cost structure.)TenAlpina: Entrepreneur’s DilemmaCase Question 1
Key partnersKey activitiesKey resourcesValue propositionsCustomer relationshipsChannelsCustomer segmentsRevenue streamsCost structureTenAlpina: Entrepreneur’s DilemmaBusiness Model Effect: Key Elementsfrom Strategyzer.com, “Business Model Canvas” HandoutPiton
Using Kowalchek’s operating costs as your best-estimate data about the forge’s cost of operation, perform a break-even analysis for the two business models – the current outsourcing arrangement and operating the forge.TenAlpina: Entrepreneur’s DilemmaCase Question 2
TenAlpina: Entrepreneur’s DilemmaBreak-even AnalysisOutsource ModelFollow-up Question:(a) Does FC seem realistic? What is missing?Current Strategy1,000 units/mo
TenAlpina: Entrepreneur’s DilemmaProjected ProfitCurrent Strategy(1k units/mo)Outsource Model
TenAlpina: Entrepreneur’s DilemmaProduction FlowCold Roll/CutHeat/Drop ForgeBoreDe-burr/PolishPackageProduction Model
TenAlpina: Entrepreneur’s DilemmaBreak-even AnalysisProduction ModelAlternative Strategy: Operate Forge4,000 units/moFollow-up Questions:(a) Where does Utility cost come from?