1 ACCT 2121 Case assignment : Shatin Dairy Farm Shatin Dairy Farm is a small, family-owned business that started its operations in 1996 with the goal of using all natural processes to create high quality dairy products. The company produces several different products sold in health food markets and some of the larger supermarkets in the area as well as in the Shatin Country Store, a small retail store located next to the farm. Shatins’ products are well-known for their quality and have gained a strong brand-loyalty throughout the region in which Shatin operates. A key competitive factor for Shatin is that is uses only glass bottles in the packaging of its products, which appeals to many of its targeted customers. Shatin’s sales have grown rapidly in recent years, but production is currently limited by the number and size of the facilities on site that can only accommodate 300 animals (of which 130 cows are part of the milking herd). As a result, Shatin is considering expanding its operations to allow it to meet the increasing demand for its products. In order to expand, Shatin would have to buy additional land, build more barns and enlarge the milking facility. Shatin’s manager, Laura Ashley, is concerned about the potentially large financial outlays that Shatin would incur with expansion and she feels that she should examine whether or not current operations are efficient and cost effective before expanding. Laura is also considering the possibility of packaging the farm’s product in plastic and paper containers instead of glass bottles. She expects that this would attract new customers, and in addition, it would reduce costs significantly. The direct cost of packaging the product (now $.75 per bottle) would be about one-third the current cost, and the cost of the bottling equipment for filling the plastic or paper containers would fall to one-half the cost of the current equipment within 6 months time. All other costs would remain the same. Also, Laura thinks the sales of the farm’s products would grow even faster with the broadened product line – the brand reputation of the farm’s products could be leveraged to bring in new customers, and the use of plastic or paper containers would enable the farm to attract new supermarkets and other retailers that do not presently handle bottles. Laura thinks that the supermarket customers would be willing to pay at least $.40 per quart more for Shatin products relative to other store brands. Laura subscribes to the relevant trade journals in dairy farming, and has excerpted the following information from a recent issue of one of her journals. It shows the buying criteria of a sample of
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- Spring '11
- Accounting, Shatin