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Jot Case Study - Challenge Question

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Rise to the challenge

SCENARIO

Today’s date is the 1 November 2012. You are the consultant to Jot, an independent toy company Prepare a report that prioritises, analyses and evaluates the issues facing the board of Jot. You should make recommendations where appropriate.

Read all the information provided before you begin.

©The Chartered Institute of Management Accountants

Page 1

A variety of issues have arisen, on which the board would like your analysis and opinion: Near-shoring proposal in Voldania Jot has been considering outsourcing part of its manufacturing to Voldania, a country in Eastern Europe and the board has asked that you consider this proposal from a financial, strategic and operational viewpoint. Tani Grun has put together some financial information as below and she comments as follows: ‘The prices we can get for products made in China as opposed to made in Voldania are the same, so we can ignore the revenue side completely. However, I have researched the costs as thoroughly as I can, but inevitably there are many estimates included.’ Jot has a five-year planning horizon and so ignores profits and cash flows after that period and would review the situation again at some future point. The intention is that Jot would gradually switch production from China to Voldania in ever increasing quantities over the initial 5-year period. Financial information: Production in units Year 1 Year 2 Year 3 Year 4 Year 5 60,000 100,000 140,000 180,000 220,000

Notes: the ‘costs’ below refer to the charge made by the manufacturer to Jot and as such are the costs to Jot rather than the costs to the manufacturer. Tani has investigated Voldanian prices by asking to a supplier to do an example quote of a product that is currently made in China for Jot. She asked for a detailed breakdown of costs charged. 1. The labour rate charged per hour in Voldania in…...

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