FINEPRINT COMPANY (A)

bad i.
up the phone and began to contemnplate thc offer he
John Johnson hung Johnson's and the owner of a small compuny
i
received. Abbie Jenkins, a friend of Fincpint
if Johnson's printing company,
nearby Keswick, Virginia, had iust called to see order next month.
printing
Company, could accommodate a special
COMPANY BACKGROUND
claborate high-quality color
Johnson's company, FincPrint Company, printed served other
brochures in its facility located in Charlottesville, Virginia. It primarily
clicnts in southwest
businesses in the central Virginia area, although it did have some at
Virginia and as far cast as the Chesapcake Bay region of the state. Monthly productionper
its Charlottesville facility was running at around full capacity of 150,000 brochures
month. John Johnson owned and managed the company. Hc cmploycd one sales
representative and one printing press operator, although he frequently relicd on temporary
labor to help in the printing process as needed to accommodate any changes in printing
volume. John felt that many of his costs were fixed, but that some costs varied with the
number of brochures he printed and sold. Exhibit 1 contains information related to
FinePrint's monthly operating costs for the company's current activity level of 150,000
brochures per month.
The company typically priced its printing services at an average of $17 per 100
brochures printed. Historically, Johnson had encountered little variation in pricing from
job to job, although occasionally, special situations did arise. He wondered how he
should handle those special situations. He didn't have a "rule of thumb" he could apply.
but he wished he could find one.

THE SPECLAL ORDER

In her phone call, Abbie Jenkins indicated that she needed a special job printed
next month. She needed 25,000 brochures related to a new product for distribution at
three trade shows she was attending. When John quoted Abbie the usual price of $17 per
100 brochures, Abbie sighed. "John, I know that FinePrint does a high-quality job, but
I'm short on funds right now because I have spent so much on getting this new product
up and running. Ican't go any higher than $10 per 100 brochures on this job. If you
can't do it for that, J'N have to go to someone else. I'm sure the brochures won't look as
nice, but that's all I've got to spend,"
John was enthused about the potential business, but when he inquired about
whether Abbie would have future printing needs that FinePrint could help with, Abbie
expressed doubt. "we just don't do much of this type of stuff. This is the first material
we've had printed like this in years, and we're only doing it because we're trying to ge
this new product off the ground. I suspect this wil be the last for along while.

4 PART II: UNDERSTANDING COSTS AND COST BEHAVIOKS

 John knew he didn't have the capacity at the moment to handle the special order.
And, $10 per 100 brochures sounded low. John replied, "Let me look into this. I'm not
sure we can do it for $10, but I'lbe glad to think about it. I'Il give you a call back in a
couple of days." John realized that with this order he wouldn't have to pay his sales
representative the typical sales commission of Sl per 100 brochures, but that $1 savings
wouldn't begin to make up for the lower price.

CASE: FINEPRINT COMPANY (A)

 ExhibitI

FINEPRINT COMPANY (A)

Summary of Monthly Operating Costs

Monthly costs at
IS0,000 volume
Manufacturing costs:
Direct material variable 6,000
Direct labor- variable 1,500
Direct labor - fxed 3,000
Manufacturing overhead - variable 1,500
Manufacturing overhead- fixed -3,375
Total manufacturing costs SI5,375
Non-manufacturing costs:
Sales - variable 1,500
Sales - fixed 1,875
Corporate- fixed 3.750
Total non-manufacturing costs S 7.125
Total costs $22,500

PART Il: UNDERSTANDING COSTS AND COST BEHAVIORS

FINEPRINT CODNIPANY (B)

ohn obnson tened antenth as Imiest radley, stting cs

Jsn' llie, outlncd his popsal met lralley, the wnet ol a the tahle in
local ne-toom
Mining etaton in (hatkttesville, Virginia called Smallint Shop, had stepped by te
hhww' Mtng conpany, Finel'int ('ompany, eould use wme help printing
coke buxhugs set the ncst few month
(OMPANY ILACKGROUND

Jehnson's cmpany. Inel'int C'ompany, pMnted elherate hugh-quality colur

brohures tn its facility lcated in Chalotlesville, Vinginia It ptinarily sened other
Vien a vgma area, altlhough il did have some clients in southwest
ils (harlotesile faciluts w y cgn ol the state Monthly produution at
hnh lohn Jonn owned and munutl she u ochures per
epresentatise and oe printing ress ojratos, althoulh he ficqueutly relied on lcpurary
labor to help in the pinting prKess as necdel t accomodate any changes i printing.
nunby b k s cst ere liacd, but that sorne costs vard with the
Exhlblt I contams inlomalion related lo
T'inelrint's montlily operatng custs for the compuny's curent activity level of I50,000
bochure per menth
THE OUrTSOURCING OPIORTUNIrY

Emest lradley owIned a local one-room printin

Shop. lis largest cutomer luad just inforned hin tluat it was geoing oul of busincss and
wonld no longer nced lis printing services. Most of SmallPrint's customes werc small
companies neling tusie printing services in small quantieslo both
Mu several of hus
basic printing
Nervises anl nore elb uhis krVices
relationhip with the customer's ownct ad had purchased the small printing res he
used for culor brochures partially to seve this customer's nees, He waa' sure how
was going te get enough business to make up for this koxs, especially since he primarily
was kno
Emet decided le son hy te 1yelahorale brochures FinePrin
Compuny. "l've had sonme bad lwck. My lasgest customer just inforcd me that it is
clasing its doors. I've been doing their color printing wock fur several yeurs, and their
closing lav me with a lot of idle capacity. I wonder if you have any euira byohure
o l d K a ycnaply. just lo kecp my CSs going.
Chure hanalle 30,o00 brachures for yosu
net month.

CASE: FNEPRINTCOMPANY (B)

 sounded like a good deal. He wasn't sure
John thought that $8 per 100 brochures knew that SnallPrint did a good job. He
that even he could print that cheaply. And he dependable.
had used them before. They did high quality work, and were
 Exhibit

FINEPRINT COMPANY (B)

Summary of Monthly Operating Costs

Monthly costs at
150,000 volume
Manufacturing costs:
Direct material - variable $ 6,000
Direct labor - variable
1,500
Direct labor- fixed
3,000
Manufacturing overhead- variable 1,500
Manufacturing overhead- fixed -3,375
Total manufacturing costs SIS,375
Non-manufacturing costs:
Sales -variable 1,500
Sales - fixed 1,875
Corporate- fixed 3,750
Total non-manufacturing costs $ 7,125
Total costs $22,500

CASE: FINEPRINT COMPANY (B)